Policy highlights
Repo rate cut by 50 bps to 6.75%, lowest in 4 years
Growth estimate for 2015-16 marginally cut to 7.4% from 7.6%
Tentative economic recovery underway, far from robust
Global environment looking weak; not good for India
Growth likely to pick up in later part of this fiscal
CPI inflation expected to reach 5.8% in January 2016
Inflation is likely to go up from Sept
FPI investment limit in debt securities to be fixed in rupee term
FPI investment limit in govt bonds to be hiked to 5% by 2018
RBI to issue final guidelines on base rate computation by November-end.
Fifth Bi—monthly Monetary Policy on December 1
11.46 am
Today’s 0.5 per cent rate cut based on progress on the ground; It’s not any Diwali bonus: RBI Governor Raghuram Rajan
Banks should be able to pass on the entire rate cut of 1.25 per cent this year to borrowers over time: Rajan.
Will an RBI rate cut lower lending rates?
11.45 am
Benchmark 10-year bond fall 9 basis points to 7.64 per cent.
This is the biggest single monetary policy move taken by Rajan and it takes the repo to its lowest since March 2011. Since taking the helm of the central bank in September 2013, Rajan has raised the repo rate three times and lowered it three times, all by a magnitude of 25 bps.
Calls for lower rates first began to grow louder after the release of data showing the economy grew by a slower-than-expected annualised rate of 7 per cent in the April-June quarter - faster than China, but well below the government's target of 8 to 8.5 percent for the year ending in March.
11.36 am
ATSI SHETH, ASSOCIATE MANAGING DIRECTOR, SOVEREIGN RISK GROUP, MOODY'S INVESTORS SERVICE, SINGAPORE
"The extent of the cut was higher than market consensus, suggesting that RBI sees underlying growth trends as still subdued enough to require more aggressive stimulus. It also suggests that inflation is not the key risk at this time, in the RBI's view."
RUPA REGE NITSURE, CHIEF ECONOMIST, L&T FINANCE HOLDINGS, MUMBAI
"A higher than expected easing is certainly bond positive. How, it gets transmitted to the real sector via credit markets remains a concern given the huge pile of stressed assets in the banking system. The use of the term front loading clearly signals that there is going to be a long pause after today's move."
11.35 am
Bank Nifty is up marginally. Of the 12 stocks, 10 are trading in the green. ICICI Bank (-1.03%) and Axis Bank (-0.83%) are down.
Canara Bank, Bank of India and Kotak Bank are the top gainers.
India VIX jumps 4.25 per cent to 22.59
11.31 am
RBI governor says the central bank will work with the government to improve transmission of rate cuts.
With today's repo rate cut, the RBI has cut 125 bps.
11.30 am
The markets after a brief bounce back are trading in the red. The Sensex is down 15.80 points at 25,601.04 while the NSE Nifty is down 8.65 points at 7,787.05.
11.19 am
Policy stance: Monetary policy has to be accommodative to the extent possible, given its inflation goals, while recognising that continuing policy implementation, structural reforms and corporate actions leading to higher productivity will be the primary impetus for sustainable growth.
Investment : Furthermore, investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow. Therefore, the central bank has front-loaded policy action by a reduction in the policy rate by 50 basis points.
Inflation : “Given our year-ahead projections of inflation, this ensures one year expected Treasury bill real interest rates of about 1.5-2.0 per cent , which are appropriate for this stage of the recovery.”
The RBI reasons that since bi-monthly policy statement of August, inflation has dropped to a nine-month low, as projected. Despite the monsoon deficiency and its uneven spatial and temporal distribution, food inflation pressures have been contained by resolute actions by the government to manage supply. The disinflation has been broad-based and inflation excluding food and fuel has also come off its recent peak in June.
US Fed : The Federal Reserve, according to the RBI, has postponed policy normalisation. Markets have transmitted the Reserve Bank’s past policy actions via commercial paper and corporate bonds, but banks have done so only to a limited extent.
“Since our last review, the bulk of our conditions for further accommodation have been met. The January 2016 target of 6 per cent inflation is likely to be achieved. In the monetary policy statement of April 2015, the Reserve Bank said that it would strive to reach the mid-point of the inflation band by the end of fiscal 2017-18.
“Therefore, the focus should now shift to bringing inflation to around 5 per cent by the end of fiscal 2016-17.”
Read full policy statement here
11.18 am
RBI to issue final guidelines on base rate computation by November-end.
11.17 am
RBI says limits for FPI investment in debt securities will be henceforth announced or fixed in rupee terms.
Limit for FPI investment in govt bonds to be increased in phases to 5% of outstanding stock by March 2018.
11.15 am
RBI cuts FY16 real GDP growth estimate to 7.4%; expects pick up towards the latter part of the fiscal.
RBI says the underlying economic activity continues to be weak becuase of the sustained decline in exports, rainfall deficiency and weaker than expected momentum in industrial production and investment activity. With global growth and trade slower than initial expectations, a lack of appetite for new investment in the private sector, the constraint imposed by stressed assets on bank lending and waning confidence, output growth projected for 2015-16 is marked down slightly to 7.4% from 7.6%.
11.10 am
RBI expects inflation to reach 5.8 per cent in January 2016, a shade lower than the August projection.
Inflation to stay below January 2016 target of 6% in FY16; will average 5.5% for FY17.
Source: RBI
11.05 am
The policy statement says: In India, a tentative economic recovery is underway, but is still far from robust.
11.00 am
In a big surprise for the markets, the RBI on Tuesday cut the policy repo rate by 50 basis points to 6.75 per cent.
The equity market which was in the red till the announcement was back in the black.
The market was widely expecting the central bank to go only for a token 25 basis points cut in view of the deficit monsoon and expectation that the US Fed will raise interest rates by December.
It has kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liability (NDTL).
The reverse repo rate under the LAF stands adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 7.75 per cent.
10.50 am
10.45 am
As the RBI Governor Raghuram Rajan is set to announce the fourth bi-monthly monetary policy statement for 2015-16, the stock markets are down over 1 per cent.
At 10.45 am, the Sensex was trading down 304 points at 25,312.03 while the NSE Nifty was down 98 points at 7697.90.
With a mounting chorus of powerful voices demanding a deep cut in policy rates from the Reserve Bank of India, the market is betting on Governor Raghuram Rajan obliging with a small 25 basis point cut in his fourth bi-monthly monetary policy announcement on Tuesday.