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Urjit Patel’s first monetary policy review

By Aman Malik

  • 04 Oct 2016
Urjit Patel’s first monetary policy review
Other | Credit: Reuters

Will India’s central bank cut interest rates or will caution be its mantra? That is the question on everyone’s mind, leading up to what will be the first monetary policy review under new Reserve Bank of India (RBI) governor Urjit Patel. Incidentally, this is also the first time a six-member Monetary Policy Committee is expected to take a call on interest rates, with the central bank governor having a casting vote in case of a tie. To that extent, today’s decision could spring a surprise, although most experts are of the view that RBI will hold policy rates till December.

The market was expecting a rate cut with Sensex up in morning but by noon the market has tempered down, reflecting a realisation that no cut is happening. 

3:05pm - Its 3 pm, and the press conference has ended.

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3:05pm - Patel says transmission through the money markets has been "swift and decisive." Admits that transmission to bank lending and borrowers has been slower. "In the new lending, transmission has been much more," he says.

3:03pm - Patel says, both upside and downside risks exist on inflation. Says larger investment in rail and roads will improve infrastructure. Also, talks about India's global competitiveness ranking going up this year.

3:00pm - "International financial markets were overwhelmed by the Brexit vote in Q2, with equity markets losing valuations worldwide, currencies plunging and turning volatile, and investors rushing for safe havens," the monetary policy statement says. 

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2:59pm - Patel says that the NPA situation has not occurred overnight. Says, just five sectors- infra, steel, power, textile and telecom- constitute 65% of the stressed assets in the country.

2:57pm - RBI monetary policy statement says that easy liquidity after the rate cut will ensure smooth transmission.

2:55pm - RBI Deputy governor N S Vishwanathan says that the central bank will come out with operating guidelines on payments banks by the end of the week.

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2:52pm - RBI says drop in CPI reflects downward move on food inflation.

2:49pm - Patel says the  three external MPC members are of "outstanding pedigree." Says discussions were "frank" and "intense." But says there was "no rancor." 

2:49pm - "Weak global demand is going to drag down trade volumes," Patel says. Says, further possible downgrading of global growth. Adds there is volatility in the emerging markets.

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2:48pm - Patel reminisces about his time at the RBI beginning the 1990s.

2:46pm - And Patel is about to speak. The MPC members are not part of the press conference.

2:44pm - The minutes of the two day MPC meeting will be published on 18 October. That should be interesting. We will know who and how many voted for a cut.

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2:43pm - Now, waiting for the press conference by Urjit Patel. Few were able to read his mind. By the way, the next Monetary Policy Committee (MPC) meeting is scheduled for December 6-7.

2:37pm - Expect banks to announce cuts in deposit rates by tomorrow. 

2:37pm - RBI says MSF, bank rate adjust to 6.75%

2:36pm - Interestingly, both Sensex and the Nifty, almost in the red. Barely holding on. Perhaps the markets think the rate cuts will not make much of a difference.

2:34pm - RBI says rate cut decision in line with 5% consumer price index inflation target by March 2017

2:32pm - Reverse repo rate also cut. New reverse repo rate 5.75%.

2:31pm - RBI cuts interest rate by 25 bps

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