RBI cuts rates by 35 bps, a bigger-than-expected cut (USD/INR stays below 71.00)

Dhwani Mehta FXStreet

The Reserve Bank of India (RBI) cut its benchmark interest rate, Repo rate, by an unconventional 35 basis points on Wednesday, its fourth cut in 2019.

Key Details:

The repo rate was cut to 5.40%.

The reverse repo rate was reduced to 5.15%.

Retains "accommodative" monetary policy stance.

All members unanimously voted to reduce policy rates, keep stance unchanged.

Four members voted for a 35-bps rate cut, 2 voted for a 25 bps cut.

Revises downwards GDP growth for 2019/20 to 6.9% from 7.0%.

Headline inflation projected at 3.1% in Q2 FY20, 3.5-3.7% in H2 FY20 with risks evenly balanced.

Addressing growth concerns by boosting aggregate demand assumes highest priority at current juncture.

Transmission of policy rate cuts to weighted average lending rates on fresh loans has improved marginally since June.

Impact of monetary policy easing since February expected to support economic activity going forward.

Inflation projected to remain within target over a 12-month ahead horizon.

Aggregate demand, investment activity remain sluggish.

To take measures to enhance credit flow to non-banking finance companies.

The Rupee remains under pressure on a bigger-than-expected rate cut announcement, with USD/INR flirting with multi-month highs near 71.00.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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