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Repo rate at lowest level in 9 years. Key takeaways from RBI's policy meet

As expected, the six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) unanimously voted to lower the repo rate by 0.25 per cent in its three-day monetary policy meet, which ended on Thursday. The repo rate that stands at 5.75 per cent post the Thursday’s review is the lowest in nine years.

This is the first time in 2019 when all members of the MPC (Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Shri Shaktikanta Das) unanimously decided to reduce the policy repo rate by 25 basis and change the stance of monetary policy from neutral to accommodative.

Accommodative stance indicates that the rate increase is off the table, said RBI Governor Shaktikanta Das. 

“The RBI policy announcement is exactly on the same lines as expected by most of the market participants. The repo rate cut of 0.25 % and the change of stance from neutral to accommodative is key to supporting the sagging economic growth. The policy also has broad indications of more action on the liquidity front from the RBI in the coming days and confirms RBI’s commitment to better transmission of the rate cut effects through liquidity," said Joseph Thomas, head of research at Emkay Wealth Management in an emailed note.

Here's a list of key highlights/observations from the June monetary policy meet:

CPI inflation expectation revised

The MPC has raised consumer price inflation (CPI) target to 3 – 3.1 per cent for the first half of 2019 – 20 (H12019 - 20) from 2.9 – 3 per cent projected in April policy meet, while the inflation numbers for the second half of the fiscal year has been revised downwards to 3.4 – 3.7 per cent from 3.5 – 3.8 per cent projected in the last meet. Giving the rationale behind the revision, the MPC noted that increase in summer vegetable prices have been sharper-than-expected, imparting an upward bias to the near-term trajectory of food inflation.

GDP growth projection

Weak global demand due to an escalation in trade wars may further impact India’s exports and investment activity, the central bank believes. Further, private consumption, especially in rural areas, has weakened in recent months. Citing these factors, the RBI has lowered GDP growth projection for the financial year (FY19) 2019-20 from 7.2 per cent in the April policy to 7.0 per cent – in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2.

On the positive side, political stability, high capacity utilisation, the uptick in business expectations in Q2, buoyant stock market conditions and higher financial flows to the commercial sector augur well for investment activity, it says.

Charges on RTGS, NEFT transactions scrapped

The RBI, in its latest policy meeting, has decided to do away with the charges levied by the Reserve Bank of India (RBI) for transactions processed in the Real Time Gross Settlement System (RTGS) and National Electronic Funds Transfer (NEFT) systems. Banks will be required, in turn, to pass these benefits to their customers.

Robust financial system

Asked about liquidity crisis in the NBFC (non-banking financial space) sector, including HFCs (housing finance companies), RBI Governor Shaktikanta Das in the presser said that although RBI doesn't have the mandate to directly regulate NBFCs it remains committed to ensuring financial stability is not hampered in any manner.

"Banks have significant exposures to NBFCs, including HFCs and RBI is monitoring the situation very closely. If the situation arises, we won't hesitate or delay to take required steps to ensure a robust, well-functioning NBFC sector," Das said in the post policy press meet. However, the RBI governor added he won't detail steps for financial stability to avoid speculation.


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