India's central bank cuts rates yet again in bid to revive growth

The Reserve Bank of India (RBI) on Friday cut interest rates for a fifth straight meeting this year, stepping up its efforts to kickstart an economy growing at its slowest pace in six years.

The six-member Monetary Policy Committee (MPC) cut the repo rate by 25 basis points to 5.15%, in line with expectations in a Reuters poll. The reverse repo rate was reduced to 4.9%.

All six MPC members voted in favour of a rate cut and for retaining the accommodative stance, the statement said.

Siddhartha Sanyal, chief economist and head of research, Bandhan Bank, Kolkata

"The cut was in line with market consensus, and we wouldn't have been surprised if the magnitude of the cut was slightly higher. We continue to see inflation well-anchored. This will offer the central bank more room for easing going ahead. We seerates eventually going to sub-5% by the first half of 2020."

"We expect some more transmission of rate cuts to borrowers will happen given that the cumulative reduction in repo rate is now 135 basis points during 2019. But that will likely be only a gradual process, given the current weak sentiment and lack of momentum in investments and credit demand from larger corporates in several pockets of the economy."

"Interestingly, in the absolute lower end of the socio-economic pyramid, however, credit growth seems to be notably better at the moment."

Shilan Shah, senior India economist, Capital Economics, Singapore

"The official policy stance remains "accommodative", suggesting that further loosening will follow in the near term. We are pencilling in another 25 bps cut in December."

"The extent of rate cuts should eventually support a pick-up in economic growth. In turn, we think that underlying price pressures will rise and push headline CPI inflation above the 4% target by the middle of next year."

"Given that interest rates in emerging markets rarely stay on hold for prolonged periods, we think the MPC will opt for modest rate hikes by the end of 2020."

Anagha Deodhar, economist, ICICI Securities, Mumbai

"We are penciling in one more rate cut, albeit of a smaller magnitude (around 15 bps). This takes our terminal repo rate expectation to 5% by the end of FY20. Likely pick-up in growth and inflation in H2 along with the fiscal stimulus provided by corporate tax cuts are likely to limit the room for MPC to cut rates."

"The upward revision in Q2 inflation confirms that the MPC had underestimated inflation previously."

"Currently, the outlook for economic growth is weak, both domestically and globally. Hence, aggressive easing of monetary policy is unlikely to boost economic growth significantly."

Garima Kapoor, economist and vice-president, Elara Capital, Mumbai

"While lower lending rates are welcome, they alone may not be able to turn around the sentiment in the economy. It would need to be accompanied by spending from the government."

"The current sluggish growth dynamics and benign outlook on inflation suggest that the MPC would have more room to cut rates."

"By November-end, data is likely to indicate that GDP growth in Q2 hasn't improved much from Q1 levels basis the high frequency data. We expect terminal repo rate to be 4.75% in this easing cycle."

"With the linking of floating lending rate to external benchmark, the transmission of rate cuts from here will be immediate. Moreover, with RBI maintaining surplus liquidity and continuing to guide for an accommodative stance, we believe the transmission is only likely to improve from here."

K Joseph Thomas, head research, Emkay Wealth Management, Mumbai

"The RBI has once again proved to be well ahead of the curve in unleashing monetary efficacies to combat the economic slowdown... with the cut of 25 bps (and) bringing down the repo rate to 5.15%."

"In conformity with this aggressive approach, the RBI is likely to continue with its campaign for more rapid transmission of the benefits to credit users, through lower rates to a large extent linked to the base rate. There may be further cuts in the rate in light of the GDP growth forecast being lowered form 6.90% to 6.10% for FY20. We need to see more action from the government for a consumption-led recovery."