Das capital for Modi: rate cut | Deccan Herald

In the very first Monetary Policy Committee meeting under him, RBI Governor Shaktikanta Das has delivered for the Narendra Modi government what his predecessor Urjit Patel hadn’t since August 2017. The RBI cut the rate at which it lends to banks to 6.25% from 6.5%, softened the monetary policy stance from ‘calibrated tightening’ to ‘neutral’, and revised the Consumer Price Inflation (CPI) outlook down to 2.8% for the current quarter, rising to 3.9% in the second half of the next fiscal, still within the 4% target rate. The time was right, too, for the 0.25% rate cut, both politically, as elections near and the government is keen to push up growth in the last few months, and economically, given the benign inflation environment. The softening of stance indicates a further rate cut in April.

Following on from the Union Budget, which sought to put more disposable income into the hands of people and provided concessions for property buyers, the rate cut will give a boost to the housing market, which is currently languishing with an unsold inventory of some six lakh units, as well as to affordable housing under the Pradhan Mantri Awas Yojana. That should make the real estate sector and home buyers happy. RBI seems determined to make sure banks pass on the rate cut and has called a meeting with banks.

Das has signalled that while the MPC will do its job of keeping inflation under control, the RBI will now shift focus to the growth needs of the economy. Indeed, he said as much, citing inflation stability. Slowing global and domestic growth, too, has made the rate cut both possible and necessary. The RBI has previously worried too much, perhaps, about inflationary pressures from too many sources, domestic and foreign. It seems to have less to worry about now. The inflation forecast remains benign; the US Federal Reserve has indicated there will be no more rate hikes in 2019; oil prices are expected to stay below $70 a barrel. The shift in RBI thinking is to monitor inflation risks but not to put off responding to the economy’s growth needs in fear of them. The MPC noted that investment recovery was being driven by government spending and it was necessary to broad-base the revival with private investment and consumption. Last month, the Confederation of Indian Industry had demanded a 0.5% rate cut. The 0.25% cut and softening stance should perk up private sector sentiment and credit uptake for investments. If that happens, it will have a multiplier effect on economic activity and could boost jobs, too. Just in time for Modi’s re-election bid?

via Das capital for Modi: rate cut | Deccan Herald

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