RBI Slashes Repo Rate By 0.25%, Loans Likely To Get Cheaper Now

India

oi-Gaurav Sharma

The
Reserve
Bank
of
India’s
Monetary
Policy
Committee
has
unanimously
lowered
the
repo
rate
by
25
basis
points
to
5.25%,
while
keeping
its
policy
stance
“neutral”.
The
decision
on
5
December
signals
a
cautious
wait-and-watch
approach,
as
inflation
stays
steady
and
growth
remains
solid
but
not
overheated.

Following
the
move,
the
MPC
retained
its
“neutral” stance,
indicating
no
clear
bias
towards
further
cuts
or
hikes.
The
decision
aligns
with
many
market
forecasts
that
expected
a
small
reduction
now,
followed
by
a
potentially
long
pause,
as
the
committee
tracks
data
on
prices
and
demand.

RBI
monetary
policy
and
repo
rate
details

Key
policy
rates
show
a
modest
shift
since
the
October
RBI
monetary
policy
review,
when
the
repo
rate
was
left
unchanged
at
5.50%.
The
December
RBI
monetary
policy
decision
trims
that
rate
to
5.25%,
as
shown
below,
while
other
benchmarks
remain
aligned
to
earlier
settings.

RBI
monetary
policy,
repo
rate
and
liquidity
support

Apart
from
the
repo
rate
cut,
the
RBI
monetary
policy
statement
includes
liquidity
support
steps.
The
RBI
plans
open
market
operations
worth
₹1
lakh
crore
in
December.
A
three-year
USD/INR
swap
of
$5
billion
is
also
scheduled,
aimed
at
smoothing
money
market
conditions
and
easing
financial
stress.

Bond
traders
reacted
quickly
to
the
RBI
monetary
policy
signals
and
the
repo
rate
move.
Government
bond
yields
slipped
after
the
liquidity
measures
were
unveiled.
The
10-year
benchmark
yield
dropped
3
basis
points
to
6.47%,
compared
with
the
earlier
close
of
6.51%,
suggesting
some
relief
in
borrowing
costs.

RBI
monetary
policy,
repo
rate
outlook
and
inflation

On
prices,
the
RBI
monetary
policy
assessment
highlights
softer
core
inflation
in
the
second
quarter.
The
central
bank
expects
this
measure
to
stay
contained,
helped
by
lower
precious
metal
prices.
The
RBI
now
pegs
full-year
CPI
inflation
at
2%,
below
the
forecast
shared
in
the
October
review.

Growth
data
gives
the
RBI
monetary
policy
room
to
adjust
the
repo
rate
carefully.
July–September
GDP
rose
8.2%,
stronger
than
many
expected.
Several
analysts
have
lifted
full-year
growth
estimates
beyond
7%,
close
to
India’s
potential
growth
band
of
6.5–7%,
which
is
seen
as
non-inflationary.