The BSE Sensex, that was trading at a gain of 200 points before the policy announcement is trading at a gain of mere 64 points after the policy announcement.
To reinvigorate aggregate demand in the economy, the Finance Minister has come up with 4 sets of major reforms which were a mix of overall macroeconomic and industry specific measures.
"Beyond the October meeting, we continue to expect the RBI MPC to deliver a final 25 bp cut to bring the repo rate to below 5% in December. By the December meeting we expect headline CPI inflation to stand at close to 4%, diminishing a case for further easing to continue," says Prachi Mishra of Goldman Sachs.
The RBI governor Shaktikanta Das, in each of the policy meets that he has chaired has announced a rate cut -- amounting to a total of 110 bps till now in 2019. Das took charge after the unceremonious exit of former RBI governor Urjit Patel, post a tussle with the centr
"The MPC will be going into the meeting with 1QFY20 GDP growth at 5% against estimate of 5.8-6.6% in 1HFY20 and 6.9% for FY2020 and having unequivocally expressed growth as its primary concern. With inflation remaining within its comfort range, despite recent onion price increases, revisions to its growth forecast warrant a sharper-than-usual rate cut in the October policy. We pencil in a 40 bps of rate cut which should be a signal to the market that the MPC is not quite done as it front loads the remaining couple of rate cuts in the cycle. Further, with the start of the external benchmarked loans in October, a larger rate cut will help in quicker transmission of rate cuts even as the non-benchmarked loans continue to factor in the past rate cuts," said Suvodeep Rakshit of Kotak Intitutional Equities explaining his rationale for 40 bps cut.
An overwhelming majority of the economists and analysts polled by DH ahead of the RBI’s monetary policy committee (MPC) meeting expect a rate cut of 25 bps. Of the 14 analysts tracking the Reserve Bank, 86% or 12 of them suggested that the central bank will go for 25 bps cut. Two economists peg for a 40 bps cut.
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Equity benchmark BSE Sensex jumped over 250 points in early trade on Friday, driven by gains in banking and financial stocks ahead of the Reserve Bank's bi-monthly policy review.
The 30-share index was trading 258.60 points, or 0.68 per cent, higher at 38,365.47. Similarly, the broader NSE Nifty spurted 70.00 points, or 0.62 per cent, to 11,384.00.
Top Sensex gainers in the early session include Yes Bank, IndusInd Bank, SBI, Vedanta, HDFC, Hero MotoCorp, Tata Steel, and HDFC Bank, rising up to 5.52 per cent.
Read the full report here.
The central bank is also expected to slash the growth estimates for the current financial year, as hinted by Das. This would also be the third time in the current financial year that the central bank would be lowering its growth estimates.In April, RBI had lowered the growth estimates for FY 2020 to 7.2% from 7.4%. In August it lowered the growth estimates by 30 bps to 6.9%. The central bank is expected to further slash it in the range of 6.4% to 6.8% in the October meet.
The RBI governor Shaktikanta Das, in each of the policy meets that he has chaired has announced a rate cut -- amounting to a total of 110 bps till now in 2019. Some, like Arun Singh of Dun and Bradstreet, expect the central bank to focus more on the transmission of the interest rates.
Other economists like Nikhil Gupta of Motilal Oswal and Suvodeep Rakshit of Kotak Institutional Equities, are of the opinion that the central bank would slash the key policy rates by 40 bps. “We pencil in a 40 bps of rate cut which should be a signal to the market that the MPC is not quite done as it front-loads the remaining couple of rate cuts in the cycle. Further, with the start of the external benchmarked loans in October, a larger rate cut will help in the quicker transmission of rate cuts even as the non-benchmarked loans continue to factor in the past rate cuts,” Rakshit said, justifying his assumption.
It’s almost universally expected in India that the central bank’s monetary policy committee will lower interest rates this week.
Many expect it to keep cutting until the policy rate hits 5% by the end of the year; it was 6% in June, and the committee cut it by an unexpected 0.35 percentage points in its last meeting to bring it down to 5.4%. The arguments for a cut are manifold: The economy is clearly spluttering, with growth coming in at a shocking 5% in the last quarter for which data is available; consumer price inflation stands at 3.2%, well below the Reserve Bank of India’s mid-point target of 4%; and industry is loudly complaining that high real rates are depressing investment.
Read the full report here.
On the other hand, Prachi Mishra of Goldman Sachs is of the opinion that the central bank will cut rate by 25 bps in this meet, followed by another 25 bps in December. The multinational investment banking behemoth believes that the domestic economic conditions continue to be soft, and inflation is expected to remain below the RBI’s medium-term target of 4%.
“See it can be anything. Last time it was 35 bps, but that did not have much impact till now. Here I think it’s more to support the steps taken by the government in the last one month. We are looking at a 5% repo rate by the end of the year,” Madan Sabnavis, Chief Economist, CARE Ratings said.
The central bank, in its August policy meeting, broke the tradition of tweaking repo rate by the multiples of 25 bps, by slashing the key policy rate by 35 bps. However, analysts are of the opinion that the unconventional rate cut wouldn’t be repeated again.
An overwhelming majority of the economists and analysts polled by DH ahead of the RBI’s monetary policy committee (MPC) meeting expect a rate cut of 25 bps. Of the 14 analysts tracking the Reserve Bank, 86% or 12 of them suggested that the central bank would go for a 25 bps cut in the key policy rate.
The Reserve Bank of India is likely to announce another 25 basis points (bps) cut in repo rate in its bi-monthly policy review meeting today.
Hello readers, the monetary policy committee (MPC) of the Reserve Bank of India (RBI) will take a decision on key policy rates today. Stay tuned for live updates.
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