RBI's policy review refreshingly straightforward and pragmatic, says Mirae Asset's Mahendra Jajoo

All said, it was a refreshingly straightforward and pragmatic monetary policy review bringing in perhaps a new era of more elaborate communication from the central banks, now in India just after Fed also started press conference at every FOMC meet.

This was the first meeting of the monetary policy committee (MPC) under Shaktikanta Das who took over as the RBI governor in December after the sudden exit of Urjit Patel over differences with the Modi government.

RBI Governor Shaktikanta Das cut the interest rate by 0.25 percent to 6.25 percent, a move that will lead to reduction of lending rate by banks leading to lower EMI for housing, vehicle loan and corporate borrowers.

Banks have also been given greater operational freedom to offer interest rates to bulk deposits, raising the definition of "bulk deposits" to Rs 2 crore from Rs 1 crore now. Mr Das also hinted at more rate cuts in future as inflation is slowing down.

India's rate cut continues a trend in which some major central banks, anxious about slowing global growth and helped by low inflation, have moved firmly away from the tightening moves made past year.

Headline inflation will likely persist within the RBI's tolerable level of 4 percent. This too at a time when GDP growth forecast has been revised downward, both for FY19 to 7.2 percent from 7.4 percent earlier at that for FY20 to 7.4 percent.

Gopal Krishna Agarwal, the BJP's spokesman on economic affairs, said the government had been asking the RBI to cut rates for some time. But a government report leaked last week showed unemployment at a 45-year-high of 6.1 percent in 2017-18.

Analysts say India needs to regularly record growth of at least eight percent to generate employment for the millions entering the workforce each year.

"Investment activity is recovering but supported mainly by public spending on infrastructure", news agency Reuters reported quoting the MPC. The monetary policy support along with the fiscal stimuli of one trillion rupee in the Union Budget comes as a booster dose for the economy.

The RBI had projected the GDP growth for 2018-19 in the December policy at 7.4 per cent (7.2-7.3 per cent in H2) and at 7.5 per cent for H1:2019-20, with risks somewhat to the downside.

Four of six members of the MPC voted to cut the rates, while all six voted for a change in the stance. There is a need to strengthen private investment activity and buttress private consumption.

"In particular, trade tensions and associated uncertainties appear to be moderating global growth", it said.

Vanessa Coleman

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