Booster Shot

The comfortable inflation figures allow Reserve Bank to cut policy rates.

- Soumik Dey

In his first monetary policy announcement as Reserve Bank governor, Urjit Patel gave clear indications that he had made a perfect sense of the market and government sentiments. The Monetary Policy Committee (MPC) under his watch reduced the benchmark repurchase rate by 25 basis points to 6.25 per cent on October 4, paving way for a reduction in interest rates.

The market read the rate cut as ‘dovish’, a departure from former governor Raghuram Rajan’s ‘hawkish’ stance over inflation. “We were expecting that the new governor will continue with the same hawkish stance as the previous governor,” said Jayant Manglik, president (retail distribution), Religare Securities. “Inflation is still not subsided and, in fact, has some chances to spike in the coming few months. A scope for cutting the policy rates was also there for the December policy instead of this one.”

In fact, a cut in borrowing and lending rates is now expected in the December policy announcement, too. “We believe the rate cut was very much required for the economy, and if inflation data support there could be another cut of 25 bps towards the end of the financial year,” said Dinesh Thakkar, chairman and managing director of Angel Broking.