Monday, September 26, 2022

RBI cuts repo rate by 35 bps, lowest since April 2010

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New Delhi: At its latest Monetary Policy Committee (MPC) meeting, the Reserve Bank of India (RBI) has decided to cut the repo rate by 35 basis points (100 bps=1 percentage point) to 5.4 percent. The benchmark rate is now at the lowest since April 2010.
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This is the fourth cut announced by the Central bank since Shaktikanta Das took charge as RBI’s Governor in December last year.

The move comes in the backdrop of an economic slowdown, low inflation, trade wars and geopolitical tensions.

Here are other key takeaways from Wednesday’s press conference:

Policy rates

Reverse repo rate adjusts to 5.15 percent

Marginal standing facility (MSF) and bank rate adjusted to 5.65 percent

Four MPC members voted for 35 bps cut and two voted for a 25 bps cut

Policy stance maintained at accommodative, which means future rate increase is off the table

Growth forecast

FY20 GDP forecast cut to 6.9 percent from 7 percent

Sees risks to FY20 GDP growth somewhat tilted on the downside

H1 FY20 GDP growth seen at 5.8-6.6 percent; H2 seen at 7.3-7.5 percent

RBI says base effects will turn favourable for GDP in October-March

Bank cites global slowdown and trade tensions as downside risks to the economy

‘Considerable slowdown in global economic activity since the last MPC meeting in June’

RBI warns that construction, the country’s largest jobs provider, activity has weakened in India

‘Downward revision in GDP was warranted by various high-frequency details’

Inflation projections

April-June 2020 consumer inflation (CPI) projected at 3.6 percent

July-September CPI inflation projected at 3.1 percent

October-March CPI inflation projected at 3.5-3.7 percent

RBI Governor Shaktikanta Das says addressing growth key priority while sticking to CPI inflation mandate

Despite adverse weather conditions, RBI allays fears of a rise in food inflation and lower Kharif output, saying: “crop sowing is lower only by 6.6 percent”

NBFCs get a booster shot

Takes measures to enhance flow of credit to NBFCs

Banks’ exposure to each NBFC raised to 20 percent of bank Tier-I capital from 15 percent

Risk weight for consumer credit reduced to 100 percent from 125 percent

Changes in priority sector lending norms

Lending to NBFCs for agriculture loan borrowers up to Rs 10 lakh classified as priority sector lending

Lending to MSMEs for agri loan borrowers up to Rs 20 lakh classified as PSL

Lending to housing for agri loan borrowers up to Rs 20 lakh classified as PSL

Measures to boost payment systems

RBI will set up central payment fraud registry for tracking payment system frauds

National Electronic Funds Transfer (NEFT) services to be active 24×7 from December from the current timings of 8.00 am to 7.00 pm on all working days (including 1st, 3rd and 5th Saturdays in a month)

Expands biller categories for Bharat Bill Payment System. BPPS is an interoperable platform for repetitive bill payments and currently covers five segments: direct-to-home (DTH), electricity, gas, telecom and water bills

To permit all categories of billers, except prepaid recharges, who provide for recurring bill payments to participate in BBPS on a voluntary basis

Apart from digitisation of cash-based bill payments, these segments would also benefit from the standardised bill payment experience for customers, centralised customer grievance redressal mechanism and prescribed customer convenience fee

Further instructions will be issued by September-end

On NPA/growth issue

Says banks are emerging out of the non-performing asset (NPA) issues and deposit growth has been slow

Relief for borrowers?

‘Expect higher transmission of reduction in interest rates to borrowers’

In talks with banks to pass on previous policy rate cuts to borrowers

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