RBI cuts key rate

Feb 08 2019


NEW DELHI: The Reserve Bank of India’s (RBI) surprise decision to cut interest rates for the first time in 18 months on Thursday is a pre-election stimulus gift from a compliant central bank for Prime Minister Narendra Modi.

But businesses and farmers — and even some of his own supporters — say it may be too little, too late to help the economy ahead of voting, which must be held by as early as May. The quarter-point reduction in the benchmark repo rate follows intense pressure late last year on the RBI to listen to government and business concerns and ease monetary policy.

“The new governor has passed the litmus test, though with 50 per cent marks,” said Mahajan, co-convenor of the Swadeshi Jagran Manch, adding that the rate cut should have been at least half a percentage point.

Four of six members of the RBI’s monetary policy committee voted to cut the rates, while all six members voted for a change in the monetary policy stance to “neutral” from “calibrated tightening”.

The RBI also eased bank lending restrictions for non-banking finance companies and raised the limit on “collateral free” farm loans in an attempt to boost lending to nearly 120 million rural households.

Published in Dawn, February 8th, 2019