Guv Das gets RBI into action, spearheads lending rate cut

Mumbai: In the first interest rate cut in 18 months, the Reserve Bank of India (RBI) on Thursday shed its hawkish stance to reduce policy rates in the maiden policy meeting under new Governor Shaktikanta Das, a move that may make home and other loans cheaper. Coming just months ahead of the general elections, the move will help boost lending and support the Government's efforts to boost a slowing economy after it unveiled an expansionary Budget last week which included a Rs 75,000-crore cash dole to small farmers and income tax (I-T) rebate to the middle class.

The RBI's six-member monetary policy committee (MPC) cut the repo rate by 25 basis points to 6.25 per cent as inflation continues to remain benign. While four out of the six members, including Das himself, voted for a reduction in interest rate, all the six members unanimously favoured a switch in stance to 'neutral' from 'calibrated tightening' adopted in October.

Emboldened by a slowdown in inflation which fell to an 18-month low of 2.19 per cent in December and is expected to be in the range of 3.2-3.4 per cent in April-September — lower than previous RBI prediction of 3.8-4.2 per cent range — the Das-led MPC weighed more concern about economic growth risks, paving the way for more rate cuts. Besides repo rate, reverse repo was reduced to 6 per cent from 6.25 per cent. Repo rate is the rate at which commercial banks borrow money from the RBI while reverse repo rate is the rate at which RBI collects money from banks.

Das, who unlike his predecessor Urjit Patel is considered more amenable to the Government's demands for boosting credit growth, said that it is "vital to act decisively and in a timely manner to address the objective of growth once price stability as defined (in RBI's inflation-targeting mandate) is achieved." A former bureaucrat, Das was appointed RBI Governor in December as Patel quit amid a debate over the central bank's autonomy.

"The shift in stance from calibrated tightening to neutral provides flexibility to address, and the room to address, sustained the growth of India's economy over the coming months as long as inflation remains benign," he said. "RBI's decision to reduce the repo rate by 25 basis point from 6.5 per cent to 6.25 per cent and its change of stance to 'Neutral' will give the economy a boost, lead to affordable credit for small businesses, home buyers etc and further boost employment opportunities," Finance Minister Piyush Goyal said in a tweet.

"Investment activity is recovering, but supported mainly by public spending on infrastructure," the MPC said in a statement. "The need is to strengthen private investment activity and buttress private consumption." Falling food prices have been the main driver of the inflation slowdown, though the core measure — which excludes food and fuel costs — remains elevated.

'It's Govt's legal right to seek interim dividend'

Mumbai: Reserve Bank of India (RBI) Governor Shaktikanta Das on Thursday said that it is the right of the Government to ask for an interim dividend from it and use it the way it wants.

"Payment of surplus or interim dividend to the Government is a part of the Reserve Bank of India Act… so we are not doing anything beyond what there is in the legal provision," he observed.

"How the Government uses the proceeds of the RBI dividend is the Government's decision," explained the former career bureaucrat.

In comments that came days after Economic Affairs Secretary S C Garg even quantified what the Government want from the RBI — Rs 28,000 crore as interim dividend — Das said that the RBI Central Board will discuss the demand at its next meeting on February 18.