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.
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.
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.
Jaitley also hinted that these very economic realities could decide whether the government sticks to a fiscal consolidation roadmap or not.
Rajan was expected to join the search committee to appoint three external members of a new six-member RBI Monetary Policy Committee
The inflation in the food basket spiked to 7.89 per cent in October 2019 as against 5.11 per cent the preceding month.
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.
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.
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.
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 the Sensex pack, Hero MotoCorp, IndusInd Bank, Bajaj Auto, Maruti and M&M were the top gainers, spurting up to 2.66 per cent.
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 last three years, public sector banks have responded to the RBI's policy rates more strongly than private banks.
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.
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.
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.
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.
'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.
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.
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.
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.
Instead of a rate hike, or even a pause, there could be a window for the RBI for an interest rate cut
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 S&P BSE Midcap and the S&P BSE Smallcap indices added 0.5% and 0.7%, respectively
The Monetary policy committe comprising 6 members voted 6-0 in the favour of the rate cut.
RBI has pegged the GVA growth of 7.6 per cent for the current fiscal and 7.9 per cent the year after
'There are deliberations on whether there can be lowering of income taxes and other sops to keep more money in the hands of taxpayers, enabling them to spend more and boost demand.'
After stripping Pluto of planet status in 2006, some astronomers want to reclassify it once again, says Devangshu Datta.
The fifth meeting of Monetary Policy Committee maintained the repo rate, at which it lends to the banks, at 6.25 per cent and the reverse repo, at which it borrows, will be 6 per cent.
This is the ninth consecutive month that the manufacturing PMI remained above the 50-point-mark.
While a pick-up in summer monsoon rains in recent weeks is expected to cool food inflation, most analysts don't anticipate another rate cut before a new governor is on the job
SBI was the biggest loser in the Sensex pack, shedding 2.40 per cent, followed by Yes Bank, Bharti Airtel, L&T, Sun Pharma, M&M, ICICI Bank, ONGC, RIL, Asian Paints, Vedanta and HUL, which lost up to 2.37 per cent.
Takeda had filed a case of patent infringement in response to Zydus' abbreviated new drug application.
'Most importantly, marking a departure from the past, the RBI has made it clear that it is not overtly worried about the level of the local currency,' notes Tamal Bandyopadhyay.
