‘Steep rate cut to give a sense of certainty to all stakeholders’

RBI Governor explains rationale behind 50 bps rate cut in one go, emphasizing certainty in uncertain environment.

The main objective behind reducing policy repo rate by 50 basis points (bps) at one go rather than on two occasions was to bring certainty in an environment of uncertainty, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on the message behind the ‘steep cut’.

“Our message is that we have been able to control inflation and we can say that we have won the war against inflation. The message is that we have reduced the inflation forecast from the earlier projected 4% to 3.7%. The growth is projected at 6.5%, which can grow further,” Mr. Malhotra said while addressing the post monetary policy press conference on Friday.

A similar decision to cut CRR by 100 bps was taken, though it could have been taken after four months.

“We announced it today so that people and banks should know that enough liquidity is made available. The more clarity and certainty they have its better. It will help in monetary policy and the economy. Our message is that our monetary policy is doing well,” he emphasised.

He said the RBI’s prime motive was to bring price stability and control inflation. After that the focus was on growth. On the move to change the monetary policy stance from accommodative to neutral, he said, “Accommodation was the intent and we could have waited, but we decided to translate the intent into action and the market has got certainty.”

As far as the neutral stance was concerned, he said it would go either way depending on the incoming data, but the MPC had made it clear that there is limited scope to cut rates further. To a query from The Hindu on the recent conflict between India and Pakistan, he said it had no meaningful impact on the economy.

“A 50-bps policy rate cut, a staggered 100 bps CRR cut and change of stance to neutral, today’s monetary policy communication was action-packed, innovative, out of the box and an unanticipated surprise,” C.S. Setty, Chairman at SBI and Chairman at IBA said.