Here's why RBI went for an unconventional rate cut

Agencies
August 22, 2019

New Delhi, Aug 22: The Reserve Bank of India had raised quite a few eyebrows when it announced an unconventional 35 basis points rate cut during its bi-monthly policy meet earlier this month.

RBI Governor Shaktikanta Das, according to the minutes of the meeting released on Wednesday, said that "the economy needs a larger push" and a reduction in the policy repo rate by conventional 25 bps will be inadequate.

Voting for a 35 basis points (bps) rate cut, Das said that "a policy rate adjustment of 25 bps or multiples thereof may not always be consistent with the evolving macroeconomic situation. Hence, at times it is apposite to calibrate the size of the conventional rate adjustment".

Noting that there was clear evidence of domestic demand slowing down further, he said that investment activity has been losing traction and the weakening of the global economy in the face of intensifying trade and geo-political tensions has severely impacted India's exports, which may further impact investment activity.

The Reserve Bank of India's (RBI) MPC voted by a 4:2 margin to cut its repo, or short-term lending rate for commercial banks, by an unprecedented 35 bps to 5.4 per cent.

Indicating future course of action, Michael Debabrata Patra, who was among the four who voted for a 35 bps cut, said that "from here on, the space for monetary policy action has to be calibrated to the evolving situation, especially as the nature and depth of the slowdown is still unravelling and elbow room may be needed if it deepens".

"A more broad-sided response involving all levers of policy acquires the highest priority now. The overarching goal is to reinvigorate domestic demand and the time to do it is now," Patra added.

Ravindra H. Dholakia had expressed that he would like to cut the policy rate by 40 bps, "but I do not mind going with majority opinion of cutting the rate by 35 bps this time, and maintaining the accommodative stance".

Voting for a 25 bps, external MPC member Chetan Ghate had said that by agreeing to a 35 bps cut, the RBI could be burning through monetary policy space.

Opposing the four MPC members who voted for a 35 bps cut, he said that there has been inadequate monetary transmission given the quantum of past rate cuts.

"..the WALR (weighted average lending rate) on fresh rupee loans in the banking system has come down by only 29 bps despite the MPC cutting rates by 75 bps in the February-June window. By a large cut (35 bps), I feel we will be burning through monetary policy space without much to show for it," Ghate said, according to the minutes.

"While the real economy needs some support, we should wait for more transmission to happen," he added.

External member Pami Dua, who also recommended a 25 basis point cut, said that it was also important to recognize that, while monetary policy can impact cyclical factors, it has its "limitations with respect to significantly impacting structural factors".

According to Dua, investment-focused fiscal policy and active continuation of structural reforms were imperative at this juncture to complement the already substantial easing in central bank rates that have been delivered since February 2019.

The rate cut earlier this month was the fourth in succession adding up to a total of 110 bps.

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News Network
April 30,2024

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Bengaluru, Apr 30: In a horrific incident, a quarrel between a 60-year-old woman and her 19-year-old daughter ended in the murder of the latter, after they both stabbed each other. The incident took place in Shastri Nagar in Banashankari police station limits in Bengaluru, on Monday evening.

The deceased has been identified as Sahitya, who had completed PUC this year. Her mother, who has sustained stab injuries, has been hospitalised. Police said the incident occurred around 7.30 pm, when a fight broke out between the mother and daughter at their house.

They both allegedly picked up knives and started stabbing each other. While the mother stabbed the daughter thrice in the neck and stomach, the daughter stabbed her mother four times. Hearing the commotion, the neighbours rushed to their house and alerted the police on seeing both of them lying in a pool of blood.

The police, who rushed to the scene, shifted both women to hospital, where Sahitya was declared brought dead. The mother, whose name was not revealed, is undergoing treatment. 

“As per the initial probe, only the two were living in the house. The reasons for the incident will be known only after the mother recovers and we record her statement,” the police said. The Banashankari police have registered a murder case and are further investigating.

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News Network
May 3,2024

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US riot police have dismantled an anti-war and pro-Palestinian protest camp at the University of California at Los Angeles, a day after it was attacked by pro-Israel supporters.

At least 200 pro-Palestine protesters were arrested during the pre-dawn raid, led by a phalanx of California Highway Patrol officers carrying shields and batons, early on Thursday.

The protesters tried to block the officers' advance by their sheer numbers, shouting "push them back", while hundreds of pro-Palestinian activists who assembled outside the tent city were heard chanting "Shame on you" at the police.

According to estimates of local television station KABC-TV, 300 to 500 protesters were hunkered down inside the camp, while about 2,000 more had gathered outside the barricades in support.

The raid took place about a day after police watched on as pro-Israel groups violently attacked the encampment. Late Tuesday night, masked counter-demonstrators mounted a surprise assault on the camp, using sticks to beat the peaceful activists.

The assault went on for three hours into early Wednesday morning until police intervened and restored order.

The authorities’ slow response drew wide criticism from political leaders, including a spokesperson for California Governor Gavin Newsom who said "limited and delayed campus law enforcement response" to the unrest is "unacceptable."

The Pro-Palestine demonstrations began at Columbia University in New York City on April 17, and have spread across other campuses in the US in a student movement unlike any other this century.

US police arrested about 2,200 people during pro-Palestinian protests at college campuses across the country in recent weeks, the Associated Press reported.

A tally by the news agency recorded at least 56 incidents of arrests at 43 different US colleges or universities since April 18.

The students are calling for an end to Israel’s genocidal war on Gaza and demanding schools divest from companies that support the Israeli regime.

Israel launched the war on Gaza on October 7 after the Palestinian resistance movement Hamas waged the surprise Operation Al-Aqsa Storm against the occupying entity in response to the Israeli regime's decades-long campaign of bloodletting and devastation against Palestinians.

Tel Aviv has also blocked water, food, and electricity to Gaza, plunging the coastal strip into a humanitarian crisis.

Since the start of the offensive, the Israeli regime has killed at least 34,596 Palestinians and injured 77,816 others.

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News Network
April 22,2024

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The BJP has opened its account in the ongoing Lok Sabha elections. The party's candidate from Gujarat's Surat constituency, Mukesh Dalal, has won the polls as all his opponents are now out of the fray.

BJP's Mukesh Dalal elected unopposed from the Surat Lok Sabha seat after all other candidates withdrew from the contest, the party's Gujarat unit chief CR Paatil said today. Today was the deadline for withdrawing nominations.

The nominations of the Congress party's Surat candidate and his substitute were rejected by the returning officer over alleged discrepancies in paperwork, a development that the Congress called an attempt at "match-fixing".

"Surat has presented the first lotus to Prime Minister Narendra Modi. I congratulate our candidate for Surat Lok Sabha seat Mukesh Dalal for getting elected unopposed," Mr Paatil posted on the microblogging website X, referring to the BJP's election symbol.

Eight candidates - seven of them independents - and Pyarelal Bharti of the Bahujan Samaj Party (BSP) withdrew their papers.

The nomination papers of the Congress's Surat candidate Nilesh Kumbhani was rejected on Sunday after the district returning officer Saurabh Parghi found discrepancies in the signatures of the proposers.

The nomination form of Suresh Padsala, the Congress's substitute candidate from Surat, was also found invalid.

The returning officer had said the four nomination forms submitted by the two Congress candidates did not appear genuine. The proposers, in their affidavits, had said they had not signed the forms themselves, the returning officer said in the order.

Congress lawyer Babu Mangukiya said the party will approach the high court and the Supreme Court for relief.

Congress leader Jairam Ramesh in a post on X said the Surat developments indicate "democracy is under threat". "Our elections, our democracy, Babasaheb Ambedkar's Constitution - all are under a generational threat. This is the most important election of our lifetime," Mr Ramesh said.

Mr Ramesh alleged the "distress" of micro, small and medium enterprise (MSME) owners and the business community in PM Modi's "Anyay Kaal" and their anger have "spooked the BJP so badly that they are attempting to match-fix the Surat Lok Sabha polls, which they have won consistently since the 1984 Lok Sabha elections."

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