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RBI is the first central bank in Asia-Pacific to start interest rate easing cycle.


Date: 25-04-2019
Subject: RBI is the first central bank in Asia-Pacific to start interest rate easing cycle
The Reserve Bank of India (RBI) is the first central bank in the Asia-Pacific region to have begun explicit interest rate easing cycle by cutting the policy rate back-to-back in the last two monetary policy reviews in 2019, said Fitch Ratings.

The monetary policy committee led by Shaktikanta Das cut the repo rate by 0.25 percentage point in February 2019 and again by 0.25 percentage point in March 2019, taking the total repo rate down to 6 per cent, the lowest in about nine years since 2010. The Monetary Policy Committee (MPC) has also kept the policy stance unchanged at neutral.

“Benign food inflation and easier global financial conditions following the US Fed’s shift to a more dovish policy stance has enabled the Reserve Bank of India (RBI) to become the first central bank in Asia-Pacific (APAC) to begin an explicit easing cycle,” Fitch said in its APAC sovereign credit overview report, reported a news agency.

With Consumer Price Index (CPI) at 2.9 percent in March 2019, the inflation is still under the target zone of 4 per cent (+/- 2 percent). This has given the central bank room for reducing the policy rate to support growth in the economy. “Fitch’s baseline is for the RBI to remain on hold for the remainder of 2019, although we acknowledge the central bank may look for opportunities for further easing,” the report added.

In the past, the government has slightly deviated from its path of fiscal consolidation. Even in the recent budget 2019-20, the government has announced various fiscal sops which will add to its expenditure. Against this background, maintaining the target of reducing debt to GDP ratio to 60 percent by FY25 from the estimated 68.8 percent IN FY19, as per FRBM Act 2018, would be difficult, said Fitch.

Earlier in April 2019, Fitch Ratings kept India’s rating unchanged for the 13th time in a row at BBB- , which is the lowest investment grade, along with a stable outlook. The agency cited various challenges faced by the country such as high public debt, weak financial sector and lagging structural reforms.

Fitch has also revised the expected growth rate of the Indian economy downwards at 6.8 percent in FY20 from an estimated 6.9 percent in FY19, before picking up to 7.1 percent in FY21, supported by accommodative monetary policy, an easing of bank regulations, and government spending.

Source: financialexpress.com

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