However, the RBI is still not in a mood to issue an OMO calendar, which was the expectation in some sections of the market.
SBI was the top gainer in the Sensex pack, rallying over 10 per cent, followed by Kotak Bank, Dr Reddy's, UltraTech Cement, ITC and HDFC Bank. On the other hand, Axis Bank, Bharti Airtel, ICICI Bank, Maruti and HCL Tech were among the laggards.
India's macroeconomic situation is improving fast and the country's GDP growth will turn positive in the third and fourth quarters of the current financial year, eminent economist Ashima Goyal said on Sunday. Goyal in an interview to PTI said the management of the COVID-19 pandemic and gradual unlocks announced by the government have helped in avoiding multiple COVID-19 peaks. The growth estimates by different agencies are being continuously revised, she said.
The RBI on Friday said the impact of coronavirus outbreak on the economy will depend on the intensity, spread and duration of the deadly virus even as the central bank refrained from projecting any numbers for growth and inflation amid the widespread uncertainty. While announcing the seventh bi-monthly monetary policy statement for 2019-20, RBI Governor Shaktikanta Das said that in view of the impact of coronavirus pandemic, the growth projections for 4.7 per cent for the fourth quarter of 2019-20 and 5 per cent for the full fiscal are "now at risk".
High inflation print is the price that the Reserve Bank of India (RBI) will have to pay to nurse a fragile growth back, say economists. Wholesale Price Index-based inflation rose to a record high of 12.94 per cent in May, aided by low base effect, but also because of higher fuel and commodity prices. Retail inflation, too, surprised by rising to 6.30 per cent, while the core inflation, which is the non-food and non-fuel component, rose to an 83-month high of 6.55 per cent. These numbers are much above RBI's upper limit of 6 per cent inflation target, but there is very little that the RBI can do at this moment.
An immediate RBI rate cut will lower lending rates for banks' MSME/retail/mortgage loans before the 'busy' industrial season ends in March.
RBi pushes for reinvigorating private investments, clearing infra bottlenecks and providing big thrust to Pradhan Mantri Awas Yojana.
FY16 GDP growth was seen at 7.5%, against 8.1-8.5% earlier.
The new rates, effective Wednesday, is the third reduction by SBI in this financial year having cut the rates by 5 bps each in April and May, while its home loan rates has come down by 20 bps during this period.
RBI Governor Shaktikanta Das said the central bank saw economic growth slowdown in February, prompting it to cut rates ahead of the curve and wondered why markets were surprised with the decision to pause rate reduction. Noting that there is a need for an "informed and objective discussion" on the country's economy, Das said the RBI would do "whatever is necessary" to address growth slowdown, spikes in inflation as well to ensure good health of banks and non-bank lenders. The apex bank went for five consecutive rate cuts starting in February this year, making it a cumulative reduction of 1.35 per cent.
FY22 will be the year to rebuild with the IMF projecting output growth at 11.5 per cent, economic survey at 11.0 per cent and the RBI's Monetary Policy Committee at 10.5 per cent.
'There are some high-frequency indicators where uptick is visible and some where it is not'
This is the 22nd consecutive month that the manufacturing PMI has remained above the 50-point mark.
The central bank tweaked the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and 4.7 per cent in the second half.
With Deputy Governor Viral Acharya and another member Chetan Ghate voting for a status quo, RBI governor Shaktikanta Das and three others outvoted them for reduction in repo rate to 6.25 per cent from the existing 6.50 per cent.
Rajan was expected to join the search committee to appoint three external members of a new six-member RBI Monetary Policy Committee
Jaitley also hinted that these very economic realities could decide whether the government sticks to a fiscal consolidation roadmap or not.
Jaitley said inflation has been under control for long and is likely to remain so on the back of good monsoon and unlikely spike in oil prices.
The inflation in the food basket spiked to 7.89 per cent in October 2019 as against 5.11 per cent the preceding month.
Top gainers in the Sensex pack included Yes Bank, TechM, Bajaj Finance, Bharti Airtel, Maruti, Asian Paints and Hero MotoCorp - rising up to 5.30 per cent. The 50-share Nifty ended 85.65 points, or 0.79 per cent, higher at 10,948.25 points.
Analysts say RBI will cut rates because the liquidity crunch that began this time last year is still hurting the economy and also with an eye on the August industrial production numbers, which showed a contraction by 1.1 per cent -- the steepest in seven long years.
In the Sensex pack, Hero MotoCorp, IndusInd Bank, Bajaj Auto, Maruti and M&M were the top gainers, spurting up to 2.66 per cent.
Bajaj Finance was the biggest loser in the Sensex pack, tanking up to 8 per cent, followed by Hero MotoCorp, IndusInd Bank, Maruti and HCL Tech. Axis Bank, ITC, NTPC and M&M were among the top gainers.
The stock markets, which had opened in the green on rate cut hopes, tumbled after the monetary policy announcement.
In its Fifth Bi-monthly Monetary Policy Statement, 2017-18, RBI said the second quarter growth was lower than the one that was projected in the October review, and the recent increase in oil prices may have a negative impact on margins of firms and Gross Value Added (GVA) growth.
In the current fiscal so far, retail inflation stabilised around 5 per cent, while wholesale price-based inflation averaged around 2.9 per cent during April-December.
In the last three years, public sector banks have responded to the RBI's policy rates more strongly than private banks.
The seasonally adjusted Nikkei India Services Business Activity Index fell to 50.2 in May, from 51.0 in April, pointing to the slowest growth rate in the current 12-month stretch of expansion.
'If the RBI now only prints Rs 100 in small denomination notes and the remaining amount is printed in Rs 500 and Rs 2,000 denominations, then by March-end the central bank can completely normalise the cash crunch situation.'
Wednesday's hawkish and essentially courageous decision underscores that Governor Urjit Patel will largely represent continuity, rather than a break, with the policies and approach of his predecessor, says Richard Iley.
Seeking to dispel possible notions of the RBI not having done enough by opting for a pause for the second consecutive time, Das said the RBI has a wide dashboard of instruments beyond rates that can be deployed.
For July-September, it pegged CPI-based retail inflation at 4.2 per cent which it saw firming up to 4.8 per cent in the second half of the current fiscal.
The Indian economy appears to have slowed down in 2018-19 due to lower private consumption, tepid growth in fixed investment and muted exports, a finance ministry report has said.
Instead of a rate hike, or even a pause, there could be a window for the RBI for an interest rate cut
While the RBI can nudge things along, ultimately bank owners must recapitalise and review internal processes to ensure that a culture of irresponsible lending doesn't continue, says Devangshu Datta.
The S&P BSE Midcap and the S&P BSE Smallcap indices added 0.5% and 0.7%, respectively
The headline seasonally adjusted Nikkei India Composite PMI Output Index, that maps both the manufacturing and services sectors, rose from 53.3 in June to 54.1 in July.
The Monetary policy committe comprising 6 members voted 6-0 in the favour of the rate cut.
For the first time, the value of card and mobile payments of Rs 10.57 trillion was more than ATM withdrawals of Rs 9.12 trillion in Q4 of fiscal 2019-20. In the months of lockdown, the gap may have widened further, but cash could be back in vogue when the situation normalises.
After unseasonal rains, supply disruptions and pandemic-induced woes pushed retail inflation well over the Reserve Bank's comfort zone in 2020, the scenario is likely to stay that way at least in the short term as economic recovery slowly gains foothold. For most part of this year, pricier food items pushed the retail inflation, based on Consumer Price Index (CPI), higher in the range of 6.58-7.61 per cent, except for March when the reading was 5.91 per cent. Experts believe retail inflation is likely to average around 6.3 per cent this fiscal and mostly will remain sticky going forward owing to pick-up in demand across sectors.
