RBI Slashes Repo Rate by 25 Basis Points, Changes Stance to 'Neutral'

Indian central bank cuts interest rate

Indian central bank cuts interest rate

Brexit uncertainty had been "weighing more heavily" on firms since November, he said.

The Eurozone growth forecast was also cut to 1.3 per cent, down from the 1.9 per cent predicted in November.

In its quarterly health check, the Bank has cut its growth forecast for the economy in 2019 from 1.7% to 1.2%, placing the blame on a slowing global economy, as well as Brexit uncertainty.

Barry McAndrew, ‎fixed income senior portfolio manager at State Street Global Advisors, EMEA, said: "The committee seem happy to wait for some clarity on Brexit negotiations and the economies response to it, before making their next move".

Ricky Knox, CEO of Tandem Bank, says, "Irrespective of whether we have a no-deal Brexit, the United Kingdom economy is slowing, just look at the problems with British vehicle manufacturing".

"There are still as nearly as a wide of range of possibilities as there were the morning after the referendum", Carney said after the Bank's policymakers voted unanimously to keep rates at 0.75 percent, as expected.

It might end up as a no-deal Brexit which would be bad for the United Kingdom economy, or it might be postponed and that would push uncertainty further down the road.

"This sent sterling to a two week low around $1.29 ahead of today's announcement from the BoE, and it fell a further third of a cent in the immediate aftermath".

And banks are reluctant to cut deposit rates in the fiscal year's last quarter, as they are keen to shore up their books while not losing hefty deposits.

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This is being driven by sharp falls in business investment, as well as a drop in consumer spending and signs of a weaker United Kingdom housing market.

Although it did hold out the hope of a recovery later this year if an orderly deal is negotiated by the March deadline.

"The shift in stance of monetary policy to neutral provides flexibility and the room to address challenges to sustained growth in the Indian economy over the coming months as long as inflation outlook remains benign", said Das.

It said the United Kingdom economy is set to grow by just 1.2 percent this year instead of 1.7 percent as predicted just three months ago.

2019 GDP forecast revised lower at 1.2% against 1.7% previously.

On the flip side, growth could slump to a potential 0.8% in 2019 should uncertainty persist and financial conditions tighten.

Most economists polled by Reuters expect interest rates to rise later this year if Brexit goes smoothly.

"These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of plus/minus 2 per cent, while supporting growth", RBI said.

The surprise move came nearly a week after Modi's administration unveiled an expansionary budget, which included US$13 billion of help for consumers ahead of the poll that's due by May, and days after a top adviser to the prime minister said the RBI should cut rates.

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