Mihir Vora, Director and Chief Investment Officer, Max Life Insurance; comments on RBI rate cut.
Mr. Vora stated, “The RBI cut the Repo and Reverse Repo rates by 25bps, about a month earlier than expected.
The action, soon after the Budget presentation, is interesting. This could be construed to be an acknowledgement that growth has been more sluggish than expected and the Government’s intention of kickstarting the economy needs to be supported. The fact that inflation has been sanguine for some time now was also a factor helping the decision.
The Budget, while pushing the fiscal adjustment process a year further away, also plans for a qualititive improvement in the deficit, with larger transfers to the state and more capital expenditures instead of subsidies. This, combined with the formal inflation-targetting agreement would have given comfort to the central bank as to the Government’s intention to address structural issues. Overall it indicates greater confidence and coordination between the Government and RBI.
It is a move which markets and businesses will welcome.”
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