Monetary Policy: RBI cuts key policy rate to 6.25%

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The MPC also changed its stance to "neutral" from the "calibrated tightening" adopted in October meet a year ago.

In the past, even when the RBI has signalled lower rates, this rate transmission never really happened because banks always found a way to ignore the central bank's policy cues. The RBI has thus cut rate for the first time in 17 months since August 2017.

Deputy Governor Viral Acharya and another MPC member, Chetan Ghate, voted for status quo in interest rates, while Das and three others voted for a cut in interest rates.

Addressing a press conference after the policy meeting, Das said inflation rate for the first half of the next financial year is estimated at 3.2%-3.4%.

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"Headline inflation is expected to remain contained below or at its target of 4%".

"The 25 bps reduction in repo rate taken together with the shift in RBI's stance from "calibrated tightening" to a "neutral approach", would go a long way in lifting sentiment among businesses", CII President Rakesh Bharti Mittal said. That scenario may change now because the new governor has his priorities on growth very clear and may not tolerate the idea of banks ignoring the RBI cues.

This is Das' first monetary policy review after taking charge as the RBI Governor, replacing Urjit Patel. That sends the message clear to lenders.

With inflation largely under control, the big concern for the government is growth, particularly in an election year.

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The RBI has revised the projection for Consumer Price Index (CPI) inflation downward.

GDP growth for 2019-20 is projected at 7.4% - in the range of 7.2-7.4% in H1, and 7.5% in Q3 - with risks evenly balanced.

The MPC noted that that the output gap has opened up modestly as actual output has inched lower than potential.

"Investment activity is recovering but supported mainly by public spending on infrastructure", the MPC said in a statement. "In such a scenario, all levers must be used to strengthen India's domestic economy through greater consumption demand and investments", Somany said.

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