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  Business   Economy  03 Oct 2017  MPC has cut repo rate only twice since Oct 2016

MPC has cut repo rate only twice since Oct 2016

THE ASIAN AGE. | ASHFAQUE ISMAIL
Published : Oct 3, 2017, 2:21 pm IST
Updated : Oct 4, 2017, 12:49 pm IST

RBI's monetary policy panel will reveal outcome of its Oct 3-4 key repo rate meet on Wednesday.

Reserve Bank of India, RBI, is a banking regulator. It also calculates and fixes repo rate. (Photo: AFP)
 Reserve Bank of India, RBI, is a banking regulator. It also calculates and fixes repo rate. (Photo: AFP)

Mumbai: When Urjit Patel took over as the governor of the Reserve Bank of India on September 4 last year after he replaced Raghuram Rajan, he had his hands full with tough tasks as by then the six-member Monetary Policy Committee, MPC, was already in place and was all set to come up with its first policy review.

Pre-MPC era, RBI governor would hold sway over calculating and fixing repo rate after taking into consideration opinions of four deputy governors. Post-MPC, the methodology of calculating and then fixing the benchmark rate changed with the panel assuming a pivotal role in the whole exercise.

 

In his very first money policy review, Patel had surprised markets, industry as well as those who closely watch central bank's monetary policy decisions equally as no one had expected a rate cut.

Back then, Patel had brought down repo rate by 25 basis points from 6.50 per cent to 6.25 per cent. The decision sent wrong message across certain quarters as at that time some experts believed Patel would not go against the wishes of the ruling dispensation.

However, going forward the notion turned out to be a mere speculation and false as Patel proved his critics wrong by not toeing the government’s line at a number of monetary policy meetings after that. He did not go for a rate cut despite being under pressure and feeling a push from the government's side as the dispensation wanted to tame economic slowdown.

 

In Octobe 2016, MPC led by Patel slashed the benchmark repo rate by 25 basis points from 6.50 per cent to 6.25 per cent, a cut which was not expected. Similarly, after almost a year in past August, the RBI announced a further rate cut of 25 basis points and brought it down from 6.25 per cent to 6 per cent.

The RBI is meeting again at a time when the Gross Domestic Product, GDP, numbers have slumped to a record low. Government statistics show GDP came down to 5.7 per cent in April-June quarter, a much lower number than the 7.3 per cent growth recorded in November quarter last year.

Governor Patel last week held a meeting with the Finance Ministry, as has been the practice ahead of every monetary policy meet. So, the government that obviously wants to end the economic slowdown and revive the GDP, may push for a rate cut.

 

Given the past stances of RBI, it is hard to predict as to what stance the central bank would reveal on Wednesday. But if it opts for a contrarian view at its MPC meet, it may cut repo rate by 25 basis points to 5.75 per cent.

Tags: rbi, monetary policy committee, mpc, urjit patel
Location: India, Maharashtra, Mumbai (Bombay)