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RBI gives a dovish boost ahead of elections: Angel Broking

“In his first Monetary Policy Announcement, the RBI governor, Dr. Shaktikanta Das gave a double dovish whammy. The repo rates were cut by 25 bps from 6.50% to 6.25% with immediate effect. In addition, the stance of the monetary policy was also shifted from “Calibrated Tightening” to “Neutral”, leaving the door open for further cuts if the data warranted. This cut effectively took the reverse repo rate under LAF to 6.00% and the  Bank rate lower to 6.50%.
What triggered the rate cut?
As the RBI governor explained in his post policy statement, the vote to cut rates was not exactly unanimous but was passed with a 4:2 vote. In fact, Dr. Viral Acharya and Dr. Chetan Gate had voted against the rate cut and had expressed preference for status quo. The rate cut was triggered by 3 key factors. Firstly, the RBI observed that the CPI inflation at 2.2% had shown a trend to stay lower. They have reduced their fourth quarter targeted inflation to 2.6%. It needs to be also noted that the RBI has consciously chosen to focus on headline inflation rather than core inflation (which is still in the 5.5-6% range). Secondly, the RBI also sees the rate cut as a growth response to the weak IIP numbers and the core sector numbers over the last few months. Das also underlined that too much of GDP growth was being driven by public spending rather than by private investment. Lastly, the rate cut was also a follow up to the dovish approach adopted by the US Fed in its January meeting.”

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