Coal news and updates

Reserve Bank surprises with early rate cut

January 15: The Reserve Bank of India (RBI) cut its repo interest rate by 25 basis points to 7.75% in a surprise move, making its first reduction in a year as inflation showed signs of slowing and the government was making efforts to contain the fiscal deficit.

The RBI added it could cut interest rates further should inflation continue to ease, while it would also monitor the government's progress on fiscal consolidation.

Helped by plunging global oil prices, India's wholesale price index for December rose just 0.11% year-on-year, after staying flat in November, according to data released on January 14.

Retail inflation, meanwhile, rose to 5% in December. The RBI is targeting retail inflation of 6.0% by January next year.

In a statement, the RBI cited lower-than-expected inflation, weak crude prices and weak demand as the reasons for its move, as well as the government's commitment to sticking to a fiscal deficit target.

"These developments have provided headroom for a shift in the monetary policy stance," it said.

The move, ahead of a February 3 RBI policy meeting and the government's annual Budget statement at the end of next month, caught markets off guard.

While the early move was unexpected, aggressive reductions in rates were expected over the course of the year to help India's economy come out of a rut, with growth rates struggling to recover from their weakest level in a quarter century.

Commenting on RBI decision, the Ministry of Finance said in a release that the 25 basis point Repo Rate cut announced by the apex bank is a welcome move and consistent with strong and ongoing disinflationary trends identified in the ministry’s Mid-Year Economy Analysis presented to Parliament last month.

The ministry further stated that this is a significant move in signalling a shift in stance and direction for policy, going forward, as the RBI’s statement has noted.

The ministry noted that the move will provide a fillip to the economy directly by increasing the private sector’s ability and willingness to spend. It should also help indirectly by improving the balance sheet of the corporate sector and banks, facilitating an increase in the demand for and supply of credit.

The ministry’s release further said that along with other policy actions already taken by the government and others that are under its consideration, this move represents one more step towards reviving investment and realizing India’s medium term growth potential.