RBI Monetary Policy: Interest rates to be unchanged


The Reserve Bank of India (RBI) issued its fifth bi-monthly monetary policy report for 2019-20 in which the Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, chose to have the policy repo rate unchanged at 5.15%. In 2019, the RBI has cut repo rate by 135 basis points so far to a nine-year low of 5.15%.

Here’s how market specialists have described the progress:

Rupen Rajguru, executive director, head of equity investment & strategy, Julius Baer

With the front-loading of 135bps rate cuts this year, the bar/hurdle for incremental rate was great and now this move of keeping status quo, we think that the RBI would wait for the Union Budget to get transparency on fiscal slippages / fiscal stimulus before taking further commercial procedure. If the increase remains to amaze on the downside and inflation continues within the pleasure zone of RBI, there is a chance of another rate cut.

Kotak Institutional Equities

While the RBI has gripped the opportunity of further rate cuts, it will depend obviously on the inflation issues, especially January and February editions (due in mid-February and mid-March) which will show if late Kharif arrivals lead to a cooling of food prices (especially onion prices).

We note that the RBI explicitly discussed the need for a lower interest rate on small savings schemes to help financial transmission. We have been highlighting the issue of small savings and transmission since early this year.

Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote

The RBI has eventually launched the ball back in Government’s court to revive the economic motor, which has further deteriorated since the last meet. Transmission of interest rates has not happened yet which could be one of the reasons RBI waited to cut rates and nudged the Government and banks to take efforts from their end. Additionally, slightly higher inflationary tendencies might have also led to the pause in a rate cut. But, this is a negative for the markets as a rate cut was required to boost risk-taking appetite in the economy.