RBI’s Christmas gift: SLR cut means banks now have more money to lend

Sampath Reddy

As expected, the RBI Monetary Policy Committee (MPC) kept the policy repo rate unchanged (with all MPC members unanimously voting for the same). It also kept the monetary policy stance unchanged at “calibrated tightening”, although one MPC member voted to change the stance back to “neutral”.

Given that CPI headline inflation came in below expectations recently, the central bank cut its inflation forecasts substantially. The headline inflation forecast for H2 FY19 has been cut from 3.9-4.5 percent in the October policy review to 2.7-3.2 percent now, while the forecast for H1 FY20 has been cut to 3.8-4.2 percent now (compared to a forecast of 4.8 percent for Q1 FY20 in the October policy review).

However, with the downward revision in inflation trajectory, RBI has highlighted some upside risks and uncertainties, such as a possible reversal in unusually low prices of certain food items (especially perishable items), uncertainty about MSP’s impact on inflation, an uncertain medium-term outlook for crude prices, volatility in global financial markets, and fiscal slippages at centre/state level.

[“source=ndtv”]