No surprise (RBI cuts policy rates again)

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 No surprise (RBI cuts policy rates again)

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• RBI cut was anticipated : The first bi-monthly policy review for FY 2019-20 by RBI MPC (Monetary Policy Committee) decided on a 25 basis points rate cut (0.25%) in the benchmark interest rates.
• What markets felt : They knew a cut was coming, and had expected even upto 50 bps. But the MPC is confronted with divergent data on economy, and hence decided to go only for 25 bps - a conservative approach.
• What divergence exactly :

1. Inflation - Despite a small spike in February 2019, inflation is below 2.6%, and may average 3.2% to 3.4% in H1 2019-20. Target was 4%. The only risk is a poor monsoon in 2019, and crude oil prices, both directly impacting inflation in India.
2. Growth slowdown - Past few months have been bad for growth, looking at GDP growth and industrial output numbers. The CSO revised GDP estimate 2018-19 downwards to 7%. For 2019-20, RBI estimate = 7.2%, which was 7.4% in last policy.

• More on inflation : 

1. The El Nino problem indicated for 2019 means a below-normal monsoon. That would mean poor crop output, hence higher prices. 
2. OPEC production cuts are pushing crude to near $70 a barrel mark. Only thing holding it back is the soft growth in global economy.

• What it all means : The RBI has accepted that growth has slowed down. More than that, after Shaktikanta Das came in, now the RBI is focussing also on "Growth" rather than only "Inflation targeting as per FIT policy".
• Neutral policy stance : The RBI will act as per emerging ground situation in future. Governor Das has, in parallel, given an indication that the 12-Feb-2018 circular struck down by the Supreme Court will now be reissued with all precautions. That is good.
• Summary : The benchmark rates have been cut by RBI by 25 basis points, indicating its willingness to focus on growth concerns too, and in an acceptance that the economy has slowed down.

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