India Monetary Policy April 2019

India: Reserve Bank of India cuts rates again in April

As widely expected by market analysts, the Reserve Bank of India’s Monetary Policy Committee (MPC) cut all monetary policy rates by 0.25 percentage points at its 2–3 April meeting, reducing the repo rate to 6.00%, the marginal standing facility to 6.25% and the reverse repurchase rate to 5.75%. This decision was supported by four of the six MPC members, with the remaining two members voting to keep rates unchanged. The MPC also voted by a majority to maintain the current monetary policy stance as “neutral”.

April’s monetary policy decision was heavily influenced by inflation considerations. In February, although consumer price inflation accelerated to 2.6% from 2.0% in January, it remained close to the lower bound of the MPC’s target range of 2.0% to 6.0%. Moreover, the MPC lowered its inflation forecast for April–September to 2.9%–3.0% from 3.2%–3.4%, and its forecast for October–March to 3.5%–3.8% from 3.9%. Anticipated weaker economic activity growth—reflected by the MPC cutting its GDP growth forecast for April 2019–March 2020 to 7.2%, down from 7.4%—is a key reason behind the more modest inflationary pressures that are expected in the coming months.

Analysts at Nomura said that April’s monetary policy decision was “broadly consistent with our macro view and expectations”, although they added they considered the RBI’s growth projections as “somewhat optimistic”. Reflecting on what this means for future monetary policy, Nomura analysts stated that “contained inflation amid disappointing growth should create some space for further policy easing”. The next monetary policy meeting is scheduled for 4–5 June.

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