The Reserve Bank of India’s (RBI’s) six-member monetary policy committee (MPC) began its bi-monthly monetary policy review on Tuesday, and will most likely wrap up the three-day meeting by cutting the repo rate by 25 basis points (bps) on June 6, say analysts, citing a sharp decline in India’s gross domestic product (GDP) growth in 2018-19.
If that happens, this will be the third meeting in a row since February when the monetary policy committee has cut interest rates. Here’s a look at what has happened in the last five monetary policy reviews by RBI.
August 2018 review
In line with market expectations, RBI’s MPC had raised repo rate by 25 bps to 6.5% in its August monetary policy review of 2018-19. It was a second consecutive interest rate increase. In the previous policy meet in June, the rate-setting panel headed by Governor Urjit Patel had raised repo rate by 25 bps to 6.25%. Back then, that was the first rates hike since Prime Minister Narendra Modi came to power in May 2014, which means close to four-and-a-half years. This was also the first time since October 2013 that the rate had been increased at consecutive policy meetings.
The MPC had kept its policy stance ‘neutral’ at the August meet.
The MPC had also decided to retain the projection of GDP growth for 2018-2019 at 7.4%. The actual GDP growth number, released on Friday, was much lower at 6.8%.
October 2018 review
In its October meet, RBI kept the repo rate unchanged at 6.5%, spooking the market, which had widely expected a rate hike of 25 basis points. While RBI decided to maintain the status quo, it turned hawkish and ruled out any rate cut in future by changing stance from ‘neutral’ to ‘calibrated tightening’.
The decision came against the backdrop of the sharp depreciation in the rupee, rising crude oil prices, intense pressure on current account deficit and liquidity issues.
Reacting to the RBI’s surprise decision, the rupee for the first time breached 74 per dollar mark on that day, while Sensex closed almost 800 points down.
December 2018 review
The MPC kept the repo rate unchanged at 6.5%, while also maintaining the ‘calibrated tightening’ stance. However, governor Urjit Patel signalled the possibility of rate cut in future.
The MPC had then significantly revised the inflation projections downwards, with the H2 FY19 inflation forecast cut to 2.7-3.2% from 3.9-4.5% earlier. However, it maintained a cautious stance and said there was a risk of sudden reversal in inflation trends.
The GDP growth forecast for 2018-19 was retained at 7.4%.
February 2019 review
The MPC surprised the market by cutting repo rate by 25 basis points to 6.25% in addition to a widely-expected change in the monetary policy stance to ‘neutral’ from the earlier stance of ‘calibrated tightening’. This was the maiden credit policy for Shaktikanta Das as the RBI governor.
A benign inflation outlook coupled with the need to strengthen private investment activity prompted the move.
The GDP growth for 2019-20 was projected at 7.4%.
April 2019 review
RBI’s MPC had again reduced the policy repo rate by 25 basis points to 6%, while maintaining a neutral stance, as retail inflation was contained within the 4% target. This was the second consecutive rate cut to support growth.
The central bank noted that there have been some signs of weakening in the domestic investment activity and revised its GDP projection downwards for FY20 from 7.4% to 7.2%.
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