Welcome 25 bps Repo Rate Cut by RBI to 6.25 percent

First Decision by MPC Members

RBI, under Urjit Patel, announced the fourth bimonthly financial review. This is a first in two respects. One, this is the first decision by Urjit Patel in his capacity as the Governor of the RBI. He took over from Raghuram Rajan from September 4 this year. Two, this decision comes from the Monetary Policy Committee (MPC) members of the RBI. “The members of the MPC were selected according to their qualification and not because of their position,” the DEA Secretary said. All MPC members favoured the cut. The repo rate cut by RBI is 25 bps and the new reverse repo rate stood at 5.75%. Finance Secretary, Mr. Ashok Lavasa. referred to the first decision by the MPC as a welcome one.

As to future and present changes, NPA revamp norms is expected by October end. All equities gained from the cut and RBI recast S4 Debts for banks. ET NOW market watch predicts this will benefit smaller sectors like leathers and textiles. PSU banks will not benefit much and will continue to struggle.

Inflation projection is under control

Inflation projection for Q4 is 5.3% and this is within the comfort zone for RBI. DEA Secretary said the targeted inflation was 4 ± 2%. Repo rate is the lowest in 6 years and this lower rate will favour businesses. The announcement to be made by the 7^th Pay Commission may prove to be adverse but it will not have any long term effect on inflation. Disinvestment target of Rs. 200 crores will be met easily. The idea is to create a CPI control move by targeting the retail inflation which seems to come through at the present juncture.

Favourable outlook for the future

One cannot expect many more cuts for the next year or even 18 months. RC Bhargava, Chairman of Maruti Suzuki, said this cut was not significant to the investor. He said the decision to invest in the market would depend on lot of other factors. These pertained to value of stock, market factors, and holdings of the company. He said the inflation would play a big role. The outlook on food production was positive due to the bountiful rains would help keep control on inflation due to food prices. V. Parthasarathy, M&M Group CFO, said the unanimous decision by the members of the MPC members said this cut augured an auspicious beginning. projecting bimonthly financial review.