India Inc cheers RBI rate cut

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RBI Governor Shaktikanta Das said, "we are constantly & continuously monitoring the liquidity situation and based on the requirement we will ensure that there is no liquidity scarcity".

Mumbai: The Reserve Bank of India (RBI) on Thursday unexpectedly lowered interest rates and as anticipated, shifted its stance to "neutral" from "calibrated tightening" to boost a slowing economy after a sharp fall in the inflation rate.

Consequently, the reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing facility rate and the Bank Rate to 6.5 per cent.

Four of six members of the MPC voted to cut the rates, while all six voted for a change in the stance.

The bi-monthly meet under RBI Governor Shaktikanta Das saw the six-member MPC panel voting 4:2 in favour of the rate cut.

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The repo rate is the rate at which the Reserve Bank lends short-term money to the banks, while the reserve repo rate is the rate at which the central bank borrows money from commercial banks. The customary post-Budget board meeting was earlier scheduled for February 9 but has now been deferred. He, however, added that the RBI's track record in projection inflation accurately is no different from the experience of global central banks, who have also seen inflation veer off the expected track in recent years. The MPC expects inflation to ease from this point (2.8 percent for ongoing quarter; 3.2-3.4 percent for first half of next fiscal).

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.

Capital Economics' Williams said that the budget proposals combined with looser monetary policy is likely to fuel inflation, raising concerns over how committed the RBI is to keeping it in check. Investment activity is recovering but supported mainly by public spending on infrastructure.

The RBI has raised the limit of collateral-free agriculture loans to Rs 1.6 lakh from the current Rs 1 lakh.

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