Tag Archive : Repo Rate

RBI Monetary Policy Meet Dec 2019

RBI Monetary Policy Highlights Dec 2019

RBI Decided to Keep Repo Rate Unchanged to 5.15% (5th December, 2019)

Introduction

Reserve Bank of India (RBI) in its fifth Bi-monthly monetary policy meet of FY2019-20, decided to keep repo rate unchanged to 5.15% on 5th December 2019. Also, RBI decided to continue with the Accommodative stance of monetary policy and also lowered GDP growth projections to 5% from 6.1% for FY2019-20. Lets discuss the key highlights of monetary policy in detail.

eBooks by Invest Yadnya
eBooks by Invest Yadnya

RBI Monetary Policy Highlights Dec 2019 – Repo Rate Kept Unchanged

  • On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its 5th Bi-monthly meeting on 5th December, 2019 decided to keep the policy repo rate unchanged at 5.15%.
  • The MPC also decided to continue with the Accommodative stance of monetary policy as long as it is necessary for reviving growth.
  • These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.
 RBI Decided to Keep Repo Rate Unchanged to 5.15% in 5th Bi-monthly Monetary Policy Dec-19
RBI Decided to Keep Repo Rate Unchanged to 5.15% in 5th Bi-monthly Monetary Policy Dec-19

1. RBI decided to keep Repo Rate unchanged at 5.15%

  • On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its 5th Bi-monthly meeting on 5th December, 2019 decided to keep the policy repo rate unchanged at 5.15%.
  • Consequently, the reverse repo rate remains unchanged at 4.90% and the Bank Rate at 5.40%.
  • In 2019, the RBI has cut repo rate by 135 basis points so far to a nine-year low of 5.15%. Analysts were expecting another 25 basis points cut. However, Monetary Policy Committee surprised, shocked even, many observers of the Indian economy by announcing that it would not cut the repo rate as it announced its Dec-19 monetary policy review.

2. RBI to Continue with the Accomodative Stance

  • RBI has decided to continue with the Accomodative stance of monetary policy as long as it is necessary to revive growth.
  • It is prudent to remain accomodative as stated by MPC. In the second bi-monthly policy review of FY20 held in June 2019, MPC had changed the monetary policy stance from neutral to accomodative.
  • A significant weakening of growth impulse, slowdown in investment activity and a continuous moderation in private consumption growth is a matter of concern, as noted by MPC.
  • On account of the slowdown in the above mentioned macroeconomic indicators, RBI sees scope to accommodate growth by supporting efforts to boost demand and re-energize the private investment activity.

3. Revision in GDP Projections to 5% from 6.1% for FY2019-20

  • GDP growth for 2019-20 is revised downwards from 6.1% in the Dec policy to 5% on account of weakening of both domestic and external demand conditions.
  • In the last MPC meet (Oct-19), GDP growth was revised to 5.3% in Q2: FY2019-20. However, the actual GDP growth for Q2: FY2019-20 slumped to 4.5%, the lowest in more than 6 years and it is significantly lower than projected number (5.3%).
    • It is due to significantly lower than expected GDP number in September quarter ie. 4.5% from 5% in June quarter.
    • Various high frequency indicators suggest that domestic and external demand conditions have remained weak. The business expectations index of the Reserve Bank’s industrial outlook survey indicates a marginal pickup in Q4.
  • GDP growth projections are in the range of 4.9-5.5% for H2: FY2019-20, with risks evenly balanced.
  • While, GDP growth for H1: FY2020-21 is also revised downwards to 5.9-6.3%.
  • The GDP projections for H2: FY2019-20 and H1: FY2020-21 are made on the following positive outlooks.
  • The impact of monetary policy easing since February 2019 is gradually expected to feed into the real economy and boost demand.
  • Several measures announced by the Government to boost growth :
  • The above measures are expected to revive sentiment and spur domestic demand, especially private consumption in coming quarters.

4. Revision in CPI Inflation

  • RBI has revised Consumer Price Index (CPI) inflation upwards :
  • H2: FY2019-20 in the range 4.7-5.1%
  • H1: FY2020-21 at 3.8-4%, with risks evenly balanced.
  • Following are the key driving factors which are taken into consideration by MPC for the revision in CPI forecast :
    1. Rise in food inflation on account of upsurge in prices of vegetables and incipient price pressure in other food items like milk, pulses, sugar.
    2. Volatile Crude-oil prices due to Geo-political tensions
    3. Near-term Price pressures due to volatile currency

5. Transmission Process

  • The success of the accommodative policy would depend entirely on the transmission of the lower rates to the ultimate borrowers. Thus the key determining factor of expected favourable results of earlier 135 points repo rate cut by RBI is the effective cascading of the benefits of lower base rate by the banks. 
  • In simple words, when RBI cuts repo rate, banks should immediately cut the interest rates of the loans. Interest rates of home loans, vehicle loan or business loans should be come down hand-in-hand.
  • RBI is focusing on quick transmission of lower interest rates to the borrowers, issuing loans from the banks. RBI has already made it mandatory for the banks to link the interest rates on loans to the repo rate.

6. RBI raised Exposure Limit of NBFC-P2P Platform & removed Escrow Account requirement

  • On Peer to Peer (P2P) Lending Platform, RBI :
    • Raised the aggregate exposure limit to Rs.50 Lakh from earlier Rs.10 Lakh
    • Proposed to do away the current requirement of escrow account to be operated by bank promoter trustee for the transfer of funds across P2P platform
  • Consequences of increase in aggregate exposure limit to Rs. 50 Lakh in P2P lending platform :
    • The existing High Net Worth (HNI) investors on P2P platform can scale up their investments
    • More HNIs would look at peer-to-peer lending as an investment option, which is a very positive sign for the industry
    • The increased limit will ease credit supply benefiting MSMEs
    • Due to removal of escrow account requirement in P2P lending platform, it will provide more flexibility in operations
RBI Cuts Repo Rate By 25 bps to 5.15% from 5.40%

RBI Cuts Repo Rate By 25 bps to 5.15%|Monetary Policy Review Oct 2019

RBI Monetary Policy Meet Highlights (4th October, 2019)

Introduction

Reserve Bank of India, RBI cuts repo rate by 25 bps from 5.40% from 5.15% on 4th October 2019. RBI decided to continue with the Accommodative stance of monetary policy and also lowered GDP growth projections to 6.1% from 6.9%, in its forth Bi-monthly monetary policy meet of the financial year 2019-20.

RBI Cuts Repo Rate By 25 bps to 5.15% – Monetary Policy Meet Key Highlights

  • On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting on 4th October, 2019 decided to reduce the policy repo rate by 5 basis points to 5.15% from 5.40% with immediate effect.
  • The MPC also decided to continue with the Accommodative stance of monetary policy as long as it is necessary for reviving growth.
  • These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.
RBI Cuts Repo Rate By 25 bps to 5.15%
RBI Cuts Repo Rate By 25 bps to 5.15%

1. RBI cuts Repo Rate by 25 bps to 5.15% from 5.40%

  • RBI cuts repo rate by 25 basis points to 5.15% from 5.40% with immediate effect. Consequently, the reverse repo rate adjusted to 4.90 from earlier rate 5.15% and the marginal standing facility (MSF) rate and the Bank Rate to 5.40%.
  • This is the fifth consecutive repo rate cut since Shaktikanta Das took over as the governor in December 2018. RBI had cut the policy rate by 110 basis points prior to this, through 3 rate cuts of 25 bps each in February, April, June and one ate cut of 35 bps cut in August MPC meet.

2. RBI to continue with Accomodative Stance of Monetary Policy

  • RBI has decided to continue with the Accomodative stance of monetary policy as long as it is necessary to revive growth.
  • It is prudent to remain accomodative as stated by MPC. In the second bi-monthly policy review of FY20 held in June 2019, MPC had changed the monetary policy stance from neutral to accomodative.
  • A significant weakening of growth impulse, slowdown in investment activity and a continuous moderation in private consumption growth is a matter of concern, as noted by MPC.
  • On account of the slowdown in the above mentioned macroeconomic indicators, RBI sees scope to accommodate growth by supporting efforts to boost demand and re-energize the private investment activity.

3. Revision in GDP Projections to 6.1% from 6.9% for FY2019-20

  • GDP growth for 2019-20 is revised downwards from 6.9% in the August policy to 6.1% on account of weakening of both domestic and external demand conditions.
  • In October MPC meet, GDP growth is revised to 5.3% in Q2: FY2019-20
    • It is due to significantly lower than expected GDP number in June quarter ie. 5% from 5.8% in previous quarter. Various high frequency indicators suggest that domestic demand conditions have remained weak.
    • The business expectations index of the Reserve Bank’s industrial outlook survey shows muted expansion in demand conditions in Q3. Export prospects have been impacted by slowing global growth and continuing trade tensions.
  • Also, GDP growth projections are in the range of 6.6-7.2% for H2: FY2019-20, with risks evenly balanced.
  • GDP growth for Q1: FY2020-21 is also revised downwards to 7.2%.
  • The GDP projections for H2: FY2019-20 and Q1: FY2020-21 are made on the following positive outlooks.
  • The impact of monetary policy easing since February 2019 is gradually expected to feed into the real economy and boost demand.
  • Several measures announced by the Government to boost growth :
  • The above measures are expected to revive sentiment and spur domestic demand, especially private consumption in coming quarters.

4. Revision in CPI Inflation

  • RBI has revised Consumer Price Index (CPI) inflation 3.4% from earlier 3.1% for Q2: FY2019-20 and 3.5-3.7% for H2: FY2019-20, with risks evenly balanced. CPI inflation for Q1: FY2020-21 is projected at 3.6%.
  • Following are the key driving factors which are taken into consideration by MPC for the revision in CPI forecast :
    1. Impact of recent policy rate cuts
    2. Rise in food inflation driven by uneven temporal monsoon in 2019
    3. Volatile Crude-oil prices due to Geo-political tensions in middle-east
    4. Ease in the output prices by the manufacturing firms as stated in the industrial outlook
    5. Near-term Price pressures due to volatile currency
eBook By Invest Yadnya
eBook By Invest Yadnya

5. Transmission Process

  • The success of the accommodative policy would depend entirely on the next level of its application, that is, the transmission of the lower rates to the ultimate borrowers. Thus the key determining factor of expected favourable results of repo rate cut by RBI is the effective cascading of the benefits of lower base rate by the banks. 
  • In simple words, when RBI cuts repo rate, banks should immediately cut the interest rates of the loans. Interest rates of home loans, vehicle loan or business loans should be come down hand-in-hand.
  • The rate cut has sent a strong signal to domestic banks to cut lending rates before the festive season kicks off in September. 
  • The transmission of policy repo rate cuts to the weighted average lending rates (WALRs) on fresh rupee loans of banks has improved marginally since the last meeting of the MPC.
  • RBI is going to focus on quick transmission of lower interest rates to the borrowers, issuing loans from the banks. Also, RBI has already made it mandatory for the banks to link the interest rates on loans to the repo rate.

Measures to Boost Payments System

  • Liquidity Support for the Proposed 24×7 National Electronic Funds Transfer (NEFT) System
    • It was announced in the third bi-monthly Monetary Policy of August 7, 2019 that the Reserve Bank of India will make available the facility of National Electronic Funds Transfer on 24×7 basis for members of public from December, 2019.
    • In order to facilitate smooth settlement of these transactions in the accounts of the banks maintained with the Reserve Bank, it has been decided that RBI will extend the collateralised liquidity support 24*7, which is currently available till 7.45 pm on NEFT working days.
    • This will help in better funds management by banks.

Market Fall Post Repo Rate Cut Announcement

Reasons of Market Fall Post Repo Rate Cut Announcement
Reasons of Market Fall Post Repo Rate Cut Announcement

Summary

  • On account of US Fed’s rate cut Global rates are cycling down. Oil and commodity prices are also slipping on global uncertainty. The domestic inflation outlook remains liberal.
  • Domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks. Private consumption, the mainstay of aggregate demand, and investment activity remained sluggish.
  • Even as past rate cuts are being gradually transmitted to the real economy, the liberal inflation outlook provides headroom for policy action to close the negative output gap.
  • The growth concerns are addressed by MPC by boosting aggregate demand, especially private investment, assumes the highest priority at this juncture while remaining consistent with the inflation mandate (4% within a band of +/- 2%).
  • The minutes of the MPC’s meeting will be published by October 18, 2019. The next meeting of the MPC is scheduled during December 3-5, 2019.
RBI Cuts Repo Rate

RBI Cuts Repo Rate by 25bps to 5.75%

RBI Monetary Policy Meet Highlights 6th June 2019

The Reserve Bank of India, RBI cuts repo rate by 25bps to 5.75% from 6% on 6th June 2019. RBI also decided to change the stance of monetary policy to accommodative from neutral and lowered GDP growth forecast to 7% from 7.2%, in its second Bi-monthly monetary policy meet of the financial year 2019-20.

RBI Cuts Repo Rate

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting on 6th June 2019 decided to reduce the policy repo rate by 25 basis points to 5.75% from 6% with immediate effect. The MPC also decided to change the stance of monetary policy from neutral to accommodative. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

KEY HIGHLIGHTS OF RBI BI-MONTHLY MONETARY POLICY MEET

RBI Monetary Policy Meet Key Highlights
RBI Monetary Policy Meet Key Highlights

1. REPO RATE CUT BY 0.25%

  • RBI cuts the repo rate by 25 basis points to 5.75% from 6.0% with immediate effect. Consequently, the reverse repo rate adjusted to 5.50% and the marginal standing facility (MSF) rate and the Bank Rate to 6%.
  • All members of the MPC (Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Shri Shaktikanta Das) unanimously decided to reduce the policy repo rate by 25 basis points.

2. Accomodative Stance of Monetary Policy

  • The Monetary Policy Committee (MPC) also decided to change the stance of monetary policy from neutral to accommodative.
  • MPC has noted that growth impulses have weakened significantly compared to the April 2019 policy. A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern.
  • Thus, RBI sees scope to accommodate growth concerns by supporting efforts to boost demand and reenergize the private investment activity.

3. FORECASTED GDP GROWTH RATE IS REVISED TO 7% FROM 7.2%

  • GDP growth for 2019-20 is revised downwards from 7.2% in the April policy to 7%.
  • It is revised in the range of 6.4-6.7% for H1:2019-20 (April to September FY2019-20) and 7.2-7.5% for H2 (September 2019 to March 2020) – with risks evenly balanced.
  • 6.4-6.7% for Apr-Sept FY2019-20 : Q4 of FY2018-19 has indicated that domestic investment activity has weakened and overall demand has been weighed down partly by slowing exports. Weak global demand due to escalation in trade wars may further impact India’s exports and investment activity.
  • 7.2-7.5% for Sept-Mar FY2019-20 : Because of key positive sides – political stability, high capacity utilisation, the uptick in business expectations in Q2, buoyant stock market conditions and higher financial flows to the commercial sector. These positive sides are promising for good investment activity.

4. Revision in CPI Inflation

  • RBI has revised Consumer Price Index (CPI) inflation forecast for the first half of fiscal year 2019-20 to 3-3.1% from 2.9-3% earlier, while the projection for the second half stands revised to 3.4-3.7% from 3.5-3.8% earlier.
  • The impact of recent policy rate cuts and expectations of a normal monsoon in 2019 are the factors which are taken into consideration by the the MPC for the revision in CPI forecast.

5. TRANSMISSION PROCESS

  • When RBI cuts repo rate, Banks should immediately cut the interest rates of the loans. Interest rates of home loans, vehicle loan or business loans should be come down hand-in-hand.
  • Transmission of the cumulative reduction of 50 bps in the policy repo rate in February and April 2019 was 21 bps to the weighted average lending rate (WALR) on fresh rupee loans.
  • RBI has given a positive signal by repo rates cut. Because it helps enhancing the demand and thereby growing the economy.

6. RBI has removed NEFT & RTGS payment charges

  • RBI has removed NEFT, RTGS payment charges to push digital transactions and has asked banks to pass on benefits to customers. 
  • In order to provide an impetus to digital funds movement, it has been decided to do away with the charges levied by the Reserve Bank for transactions processed in the Real Time Gross Settlement System (RTGS) and National Electronic Funds Transfer (NEFT) systems.
  • Thus, Banks will be required to pass these benefits to their customers. Instructions to banks in this regard will be issued within a week. 

7. POSITIVE IMPACT ON CORPORATE BANKS, AUTO COMPANIES, Real Estate

  • A repo rates cut generally augers well for companies which are debt-laden (as it reduces interest cost), and banks as well as Housing Finance companies as it brings down the cost of funds for them. Thus, Repo rates cut can have a positive impact on the corporate banks such as SBI, ICICI Bank, Axis Bank, Yes Bank etc to increase their profitability.
  • Due to current scenarios liquidity crisis in NBFCs sector such as DHFL and IL&FS, NBFCs are unlikely to get benefited even from repo rate cut. Thus it would offer an added competitive advantage for the banks to increase their profitability.
  • Auto sector would also be one of the key beneficiaries of rate cut. Auto companies, specifically 2 wheeler auto companies such as Bajaj Auto, Hero Moto Cop can be benefited from the repo rates cut by boosting their sales numbers.
  • For the real estate sector, a fall in interest rates could also mean lower EMIs. However, it all depends on the full transmission of the reduction in policy rate to the retail customers by the banks.

SUMMARY

  1. Global economic activity has been losing pace, reflecting further slowdown in trade and manufacturing activity. Crude oil prices are remained volatile and there are many uncertainties surrounding US-China trade negotiations as well as Brexit.
  2. Thus, Monetary Policy Committee (MPC) noted that the output gap remains negative and the domestic economy is facing headwinds, especially on the global front. So there is a need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.
  3. Against this backdrop, the MPC decided to reduce the policy repo rate by 25 basis and change the stance of monetary policy from neutral to accommodative.
  4. The minutes of the MPC’s meeting will be published by June 20, 2019. The next meeting of the MPC is scheduled during August 5 to 7, 2019.
RBI cuts repo rate

RBI Cuts Repo Rate By 0.25% – Meeting Highlights

RBI Monetary Policy Committe Meet Highlights 4th April 2019

Introduction

The Reserve Bank of India, RBI cuts repo rate by 0.25% to 6% on 4th April 2019. RBI has also maintained the policy stance neutral and lowered the retail inflation and GDP forecasts.

On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting on 4th April 2019 decided to reduce the policy repo rate by 25 basis points to 6.0% from 6.25% with immediate effect. The MPC also decided to maintain the neutral monetary policy stance. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

Key Highlights And Impacts of RBI Bi-monthly Monetary Policy Committee Meet

RBI Bi-Monthly Monetary Policy Committee Meet Key Highlights
RBI Bi-Monthly Monetary Policy Committee Meet Key Highlights

1. Repo Rate Cut By 0.25%

  • RBI cuts the repo rate by 25 basis points to 6.0% from 6.25%. Consequently, the reverse repo rate adjusted to 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25 per cent.
  • The six-member committee voted 4:2 for the decision. Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted in favour of the decision to reduce the policy repo rate by 25 basis points. Dr. Chetan Ghate and Dr. Viral V. Acharya voted to keep the policy rate unchanged.

2. Neutral Stance

  • The Monetary Policy Committee (MPC) also decided to maintain the neutral monetary policy stance.
  • The voting was  5:1 for the decision. Dr. Chetan Ghate, Dr. Pami Dua, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Shri Shaktikanta Das voted in favour of the decision to maintain the neutral stance of monetary policy. Dr. Ravindra H. Dholakia voted to change the stance from neutral to accommodative.
  • The stance has been maintained at neutral perhaps in the context of the rising crude price and concerns regarding a below normal monsoon.

3. CPI Inflation is lowered to 2.4% from 3%

  • RBI has revised Consumer Price Index (CPI) Inflation target downward sharply to 2.4% from 3%.
  • CPI inflation was seen at 2.9-3% in the first six months of FY20, below the RBI’s comfort zone of 4%. RBI sees inflation rising to 3.5-3.8 per cent in the second half, with risks evenly balanced. When RBI feels that CPI inflation is under control, things like repo rates cut happens.

4. Forecasted GDP growth rate is revised to 7.2% from 7.4%

  • RBI has revised Expected (Forecasted) GDP growth rate for 2019 from 7.4% to 7.2%. GDP growth for 2019-20 is projected at 7.2% (in the range of 6.8-7.1% in H1:2019-20) and 7.3-7.4% in H2, with risks evenly balanced.
  • Signs of domestic investment activity weakening, will reflect in a slowdown in production and imports of capital goods. The moderation of growth in the global economy might impact India’s exports. Thus there is a small downgrade in the GDP growth rate.

5. Transmission Process

  • When RBI cuts repo rate, Banks should immediately cut the interest rates of the loans. Interest rates of home loans, vehicle loan or business loans should be come down hand-in-hand.
  • Transmission of the previous rate cut in February did not materialize as liquidity remained tight. Despite the RBI’s continued open market operations and the dollar-rupee swaps, systemic liquidity as of March-end was in deficit at Rs 40,000 crore. The tightness in liquidity was visible in high credit-deposit ratios and elevated corporate bond spreads.
  • This transmission system should get properly benchmarked. Still there are no final guidelines regarding the transmission process yet. RBI has given a positive signal by repo rates cut. Because it helps enhancing the demand and thereby growing the economy.

6. Closed Monitoring of Fiscal Position by Government

  1. RBI has observed that the government should perform monitoring on the fiscal positions. There is a deficit in the revenues. Before last 6-7 days, there was a deficit of Rs1,80,000 Crore in the direct tax revenue. Still there is a deficit of Rs. 80,000 Cr in direct tax collection. Fiscal deficit no is 3.351% and can go further to 3.5% Revenue from GST tax collection was quite good. Still taking both direct and indirect tax collection into the account, there is a deficit of Rs 60,000 Cr currently.
  2. Government have to clarify how these deficit no can be further decreased. Otherwise, a bad fiscal position would show its cascading impact in many places- rupee may depreciate; it will hamper the various types of government spending. Therefore, government show do a closed monitoring on its fiscal position, suggested by RBI observation.

7. Stock Market reaction

  • RBI has cut repo rate, so it should have a good impact on the economy and thus on the stock market. Because, generally when repo rates cut, interest rates come down, profitability of companies will increase.
  • BSE Sensex traded 50 points down at 38,820 on 4th April. The rupee extended its weakness and was down 43 paise at 68.87. The 10-year bond yield stood at 7.3, up 0.4%

8. Monsoon Prediction

  • Skymet consignment has given monsoon prediction to be below normal. Generally, Average normal monsoon prediction is in the range 90%-96%.
  • Below normal monsoon prediction can be resulted into rural distress/farmer distress. It can also have a cascading impact on the economy.
  • As a result all these perceptions has affected the market and market has given negative reactions to the same(market has come down due to it).

9. Positive Impact on Corporate Banks, Auto Companies & NBFCs

  • Repo rates cut can have a positive impact on the corporate banks such as SBI, ICICI Bank, Axis Bank, Yes Bank etc to increase their profitability.
  • Auto companies, specifically 2 wheeler auto companies such as Bajaj Auto, Hero Moto Cop can be benefited from the repo rates cut.
  • In addition it, NBFCs particularly Housing Finance Companies like India Bulls, DHFL, HDFC, Grow Finance would have a very good impact of RBI repo rates cut. So sentimentally these stocks are positive in near future.

summary

  1. Monetary Policy Committee (MPC) noted that the output gap remains negative and the domestic economy is facing headwinds, especially on the global front. So there is a need is to strengthen domestic growth impulses by spurring private investment which has remained sluggish.
  2. Against this backdrop, the MPC decided to reduce the policy repo rate by 25 basis points and maintain the neutral stance of monetary policy
  3. The minutes of the MPC’s meeting will be published by April 18. The next meeting is scheduled from June 3 to 6, 2019.

5 Most Important Economic Indicators

Retail Sales – Retail sales are particularly important measure and function hand in hand with inventory levels and manufacturing activity. Most importantly, strong retail sales directly increase GDP, which also strengthens the home currency. When sales improve, companies can hire more employees to sell and manufacture more products, which in turn puts more money back in the pockets of consumers.

In general, an increase in retail sales indicates an improving economy.

Inflation – If the RBI thinks inflation is rising, it’ll put on the economic brakes by raising interest rates.

Inflation can be both beneficial to economic recovery and, in some cases, negative. If inflation becomes too high the economy can suffer; conversely, if inflation is controlled the economy may prosper. With controlled, lower inflation, employment increases, consumers have more money to buy goods and services, and the economy benefits and grows. A low and stable inflation rate is a perquisite for sustained high economic growth.

Repo rates – Repo rates are one of the most important drivers of the economy. From affecting the inflation (decrease in repo rate leads to increase in inflation) directly to influencing the foreign exchange rate (increase in repo rate leads to fall in exchange rate due to strengthening of domestic currency), repo rate plays a central role in the money supply of an economy. Also if repo rate decreases then the GDP of a country increases (increase in money supply leads to increase in demand of goods). Repo rate has a multiplying effect on the economy.

It is used by a central bank as a tool to manage the economy – either by raising the interest rate to curb inflation, or lowering the interest rate to promote growth.

If the central bank increases the repo rate, then borrowers have to pay more for the money they borrowed. This reduces the amount of money they have for spending on other things and thus impacts the economy.

Foreign Direct Investment – Foreign Direct Investment (FDI) is a leading economic indicator which greatly influences the general economy as whole.

FDI which is a direct investment into the country from an entity in another country, either by setting up a new company or by way of a merger or acquisition etc., also indicates the positive perspective or approach of the overseas investors.

FDI has had a positive impact on an economy. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to economic growth of an economy.

Total New Vehicle Sales – New car sales are a reliable economic indicator which tells us whether the economy is starting to pick up. People buy a car only when they feel certain about their job prospects and hence, feel financially secure. Further, once car sales pick up, sale of steel, tires, auto-components, glass etc., also starts to pick up as well. New car sales are a good indicator of economic growth.

Economic Indicators

%d bloggers like this: