Economy

Indonesia's inflation slows in July, supporting neutral monetary policy

Indonesia's inflation slows in July, supporting neutral monetary policy

India's central bank made a decision to cut its key interest rates by 25 basis points, as widely expected, on Wednesday.

Rakesh Yadav, Chairman, Antriksh India Group: The sector was hopeful for a rate cut today and after nearly 9 months, the RBI has decreased the key rate by 25 basis points.

RBI has cut policy rates by 25 basis points and maintained its neutral stance on policy rates.

Motilal Oswal, CMD, Motilal Oswal Financial Services Ltd: "This was nearly a copybook event where street expected 25 bps and RBI governor delivered 25 bps cut on the policy front". The RBI last cut the rate in October. The banking system has hardly followed the cues from the central bank's monetary policies in the past - something highlighted by both Patel and Raghuram Rajan, the previous RBI governor.

"The RBI decision to cut repo rate was a welcome move and will perk up market sentiments".

The Reserve Bank has constituted an internal study group to suggest measures to improve the monetary transmission and further explore the possibility of linking the bank lending rates directly to market determined benchmarks. We had hoped for a 50 bps cut as good monsoons, favourable global environment and new reforms provided the ideal platform to aggressively cut rates.

Following the move, the reverse repo rate under the liquidity adjustment facility (LAF) stands adjusted to 5.75%, and the marginal standing facility (MSF) rate and the bank rate to 6.25%. The rate cut represents the significant fall in inflation in recent months. He said, "The banks seem to be suggesting they are not going to attract a whole lot of new credit if they reduce rate, so why not stay with the existing borrowers and so on". Globally the world is marching ahead with zero to negative real interest rates, while in India it is one of the highest thereby keeping rupee at alleviated levels impacting exports.

The RBI in its third bi-monthly monetary policy stressed on reinvigorating private investment, removing infrastructure bottlenecks and giving a major thrust to Pradhan Mantri Awas Yojana for housing for all.

The rate cut will likely ease some of the pressure from the government and markets for action to lift the economy, which had annual growth in January-March of 6.1 percent - fast by global standards but India's lowest number in over two years.