ET View: 3 reasons for RBI's 35 bps rate cut

A cut in the repo rate was widely expected. Most expectations were for 25 basis points, some optimists hoped for 50 basis points. The Monetary Policy Committee has plumped for 35 basis points. What would have prompted this departure from the norm of moving the rate in multiples of 25 basis points?

The MPC signals three things, with this unusual quantum of change. One, it makes it clear that it shares the general concern about slowing growth and would like to do its bit to lift spirits and get the economy moving. Things are bad enough to warrant a rate cut larger than what would have been considered normal.

Two, it did not want to send out any wrong impression that things are desperate. Not that a 50 basis point cut would have sent alarm bells ringing at every bond trader HQ. However, this is the fourth consecutive rate cut, and making that by 50 basis points might have sent out wrong signals, especially to a US Treasury department sniffing around for currency manipulators.


Three, the MPC wants to make it clear that it is capable of unconventional moves, that those who expect Indian monetary policy to move merely along a familiar rut are in for a surprise