RBI repo rate cut decoded: Good news for borrowers, says HDFC Bank's Abheek Barua

The Reserve Bank of India (RBI) on Friday announced the fourth bi-monthly monetary policy for 2019-20, after a three-day meeting. The The six-member Monetary Policy Committee (MPC) cut the repo rate by 25 basis points. According to latest updates, RBI cut repo rate from 5.40% to 5.15%. Moreover, reverse repo rate adjusted to 4.90% and bank rate at 5.40 %, accordingly. 

Abheek Barua, Chief Economist & Executive Vice President, HDFC Bank, today's Monetary Policy decoded the announcement:

RBI monetary policy meet in a nutshell:

1. RBI cut the repo rate by 25 bps to 5.15% and reduced the reverse repo to 4.9%
2. Five MPC members voted for a 25 bps cut and 1 voted for a 40 bps cut
3. The MPC revised its GDP growth forecast from 6.9% to 6.1% for FY20.
4· Inflation estimate for H2 FY20 were kept unchanged (at 3.5%-3.7%) while that for Q2 FY20 was raised to 3.4% from 3.1% earlier. 

Economic Growth 

The monetary policy speech today clearly focused on growth and has done so by reducing the repo rate by 25 bps. 

Borrowing Costs

This indicates an immediate reduction in borrowing cost for some segments of the borrowers. While for the others it will come down over a course of time. 

Inflation

RBI has also recognized that inflation is no longer that much of a worry and despite some pressures building up in the system it will be well under control. 

FutureSpeak

We expect more rate cuts in the forthcoming policy considering growth is somewhat tepid and the RBIs mission as it has made it clear today is to get growth up through a combination of rate cuts and keeping money moving in the system. 

Conclusion

Overall in our perspective today's monetary policy indicates good news for borrowers.