RBI Policy Review: Repo rate cut by 35bps to 5.4%

RBI Policy Review LIVE: Repo rate cut by 35 bps to 5.4%

The RBI, in its bi-monthly policy review today, trimmed the repo rate by 35bps to 5.40% with an accommodative stance. Boosting private investments assumes highest priority.

The RBI, in its bi-monthly policy review today, trimmed the repo rate by 35bps to 5.4% with stance maintained as accommodative.

Reverse repo rate at 5.15%. Marginal standing facility (MSF) and bank rate adjusted to 5.65%.

The market largely anticipated a rate cut of 25 bps.  

Key Highlights:

RBI has been taking steps to enhance credit to NBFCs.

Real GDP growth forecast cut to 6.9% for FY20. 

April-June 2020 CPI estimated at 3.6%.

The rate cut is owing to downside risks to economic growth, as per RBI.

This is the fourth consecutive rate cut since Feb 2019.

The apex bank has decided to raise banks' exposure limit to a single NBFC to 20% of Tier-I capital of the bank.

Four MPC members (Ravindra H. Dholakia, Michael Debabrata Patra, Bibhu Prasad Kanungo and Shaktikanta Das) voted to reduce the policy repo rate by 35bps, while two members (Chetan Ghate and Pami Dua) voted to reduce the policy repo rate by 25bps.

RBI says various high frequency indicators suggest weakening of both domestic and external demand conditions.

GDP growth is in the range of 5.8-6.6% for H1FY20 and 7.3-7.5% for H2FY20, with risks somewhat tilted to the downside.

The GDP growth for Q1FY21 is projected at 7.4%.

Bank lending to registered NBFCs (other than MFIs) for on-lending to Agriculture (investment credit) up to Rs10 lakh, micro and small enterprises up to Rs20 lakh and housing up to Rs20 lakh per borrower will be classified as priority sector lending.

RBI says global activity has also slowed down due to trade disputes. Markets turning volatile due to geopolitical tensions.

Monsoons rapidly catching up; Kharif sowing down only 6.6%

Boosting private investments assumes highest priority.

NEFT facility to be available 24*7.

Central payment fraud registry will be launched to detect payment system frauds.

RBI expects lenders to transmit rate cuts progressively.

Liquidity surplus in June; sufficient liquidity has been provided to the system using LAF, OMOs, forex swaps.

MORE WILL UPDATE SOON!!