Talking Points:
- Repo rate cut to 6.75%, Reverse repo cut to 5.75%
- The Indian Rupee rose 0.5% versus the US Dollar
- RBI to shift focus to seeing banks implement rate cuts
The Indian Rupee rose 0.5 percent versus the US Dollar despite a larger than expected interest rate cut from the RBI as the central bank hinted that further easing unlikely for the time being. The RBI cut the benchmark repurchase rate to 6.75 percent from 7.25 percent, and the Reverse repo rate to 5.75 percent from 6.25 percent. The cash reserve rate remained unchanged at 4.00 percent. The move marked the fourth interest rate cut this year.
While economists expected a cut of 25 basis points, the RBI “front-loaded” a bigger cut in an attempt to stimulate the economy due to global growth concerns and broad-based disinflation after price growth excluding food and fuel came off its peak in June.
Reading the monetary policy statement, the RBI now turns its focus to working with the government in order to ensure that banks implement monetary policy in the near term. The RBI remarked that while the market was transmitting prior RBI cuts via commercial paper and corporate bonds, banks have done so only to a limited extent. The markets appeared to interpret this to mean that further RBI easing is unlikely for the time being.
