RBI cuts repo rates by 25 bps as anticipated: Angel Broking

Mr. Jaikishan Parmar (Sr. Equity Research Analyst - BFSI, Angel Broking):

"The first policy of the new financial year and the last policy ahead of the general elections cut the repo rates by 25 basis points to 6%. This virtually restores the status quo prior to June 2018. While the stance of the monetary policy was maintained at "Neutral" with a vote of 5:1, the rate cut had a vote of 4:2 in favour of the rate cut. The repo rate cut proportionately reduces the reverse repo rate to 5.75% and the bank rate / MSF rate to 6.25%.

The trigger for the rate cut was a weak growth impulse and restrained inflation. GDP growth is expected to be just about 7% this fiscal and 7.2% next fiscal. With global growth likely to slow by 20 bps this year, lower rates could give the much needed boost. Also, the inflation rate at 2.6% inn February was way below the cut off rate of 4%. Even considering the El Nino impact, the buffer of 1.4% was sufficient to cover any upside risks to inflation.

Apart from the rates, the government has also committed to keep the liquidity taps flowing with a combination of OMOs and dollar swap auctions. The highly controversial external benchmarking for loans has been put off till further discussion. At the same time, the RBI policy also tweaked the norms for HQLA to NDTL ratio of banks to spur the creation of credit.

The minutes of the policy will be out on 18th April and the next policy will be announced on 06th June by which time the new government should be in place."

Source : Equity Bulls

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