Heena Sharma Blog

A rate cut by the Reserve Bank of India (RBI) was much expected this time and the Governor did not disappoint. The aggressive cut of 75 basis points (bps) in the repo rate is commendable, as it provides the balm required to revive the economy. This is evidently meant to counter the negative impact of the coronavirus (Covid-19) pandemic . Governor Shaktikanta Das was very prudent in not giving a forecast for growth or inflation because, as he rightly stated, with things changing so fast, it is not certain how long the threat will last and how its spread and depth will impact the economy. Therefore, the policy is directed towards the immediate problem of mitigating the damage caused by the virus. The RBI has decided to use a novel way to influence interest rates. The repo rate has come down to 4.4 per cent, while the reverse repo rate is now 4 per cent with a difference of 40 bps. The idea is to ensure that banks do not deposit surpluses in the reverse repo auctions, which is av...

Following in the footsteps of global central banks, the Reserve Bank of India (RBI) on Friday lowered the key repo rate by 75 basis points (bps) to 4.4 per cent, to help arrest the economic slowdown in the wake of the coronavirus (Covid-19) outbreak. The reverse repo rate now stands at 4 per cent, down 90 bps. Repo rate is the rate at which a country’s central bank lends money to commercial banks, and reverse repo rate is the rate at which it borrows from them. MPC voted 4-2 in favour of the reduction of the repo rate by 75 bps, RBI Governor Shaktikanta Das said in an address to media. The governor informed that the members of the MPC met on March 24, 25 and 27. "It is our effort to ensure normal functioning of the market," Das said. The governor further said that the economic growth and inflation projection would be highly contingent depending on the duration, spread and intensity of the pandemic. "Need of the hour is to shield the economy from the pandemi...

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Thursday kept the repo rate unchanged at 5.15 per cent — a 10-year low in its last policy review of the financial year 2019-20 (FY20). Consequently, the reverse repo rate stands unchanged at 4.90 per cent. Further, the bank said it will maintain 'accommodative' policy stance as long as it takes. The committee voted 6-0 in favour of the status quo of the interest rates. GDP growth forecast for the financial year 2020-21 (FY21) is projected at 6 per cent and in the range of 5.5-6.0 per cent in the first half of the next fiscal. while real GDP growth for 2019-20 was projected in the December 2019 policy at 5.0 per cent – 4.9-5.5 per cent in H2. In its last policy meet, the central bank had maintained the repo rate at 5.15 per cent points (bps). However, GDP growth forecast for FY20 was slashed to 5 per cent from 6.1 per cent. Read More

It was widely expected that the Reserve Bank of India (RBI) would cut interest rates on Friday for two reasons. The first is that by now it has become a habit where low growth tendencies, which have taken precedence over the original goal of inflation targeting gets thumbs-up for a rate cut. The second is that over the last month or so, the government has announced various steps to revive the economy with the last measure being the corporate tax cut. A rate cut after all these announcements appeared to be a foregone decision. The point of interest, however, was the quantum of the cut. The last time the Governor went in for 35 basis point (bps) cut, which was non-conventional and had popped up the choice between 25 bps and something more this time around. The RBI has settled for 25 bps this time. Given that the 110 bps rate cut so far has not quite led to the uptick in investment, one can look upon the series of rate cuts as being work in progress to lower the cost of capital ...