RBI cuts repo rate in first policy review under new governor

09 Февраля, 2019, 16:30 | Author: Eric Barnett
  • A pedestrian passes the Bank of England in the City of London

"Uncertainty about the outcome of negotiations has intensified since November and is now weighing more heavily on activity, predominantly through lower business investment and tighter financial conditions", he said.

The Reserve Bank of Australia, Bank of Korea and Bank of Thailand have also tempered their outlooks in recent weeks.

India's central bank on Thursday unexpectedly lowered interest rates and, as anticipated, shifted its stance to "neutral" to boost a slowing economy after a sharp slide in the inflation rate.

Bank of England Governor Mark Carney pointed towards uncertainties around Brexit causing "short-term volatility" and a "series of tensions" in the economy and businesses.

"Nothing has really changed in terms of the UK's economic prospects since the MPC's last decision to keep rates the same in December - the direction of the economy is still dogged by the potential of a no-deal Brexit".

The BoE has previously said a worst-case Brexit scenario, with no deal for a transition period and a sudden loss of confidence in Britain among foreign investors, could hammer the economy more than the global financial crisis did.

"Taking into consideration these developments and assuming a normal monsoon in 2019, the path of CPI inflation is revised downwards to 2.8 per cent in Q4:2018-19, 3.2-3.4 per cent in H1:2019-20 and 3.9 per cent in Q3:2019-20, with risks broadly balanced around the central trajectory", RBI said.

The greenback is extending gains against the likes of the pound, euro, swissie and loonie and that is resulting in a drop in cable below the 1.2900 handle.

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Consumer confidence "took another step down in January", he cautioned, as household spending and the housing market have begun to show signs of being impacted.

It's unclear she will be able to get any concessions and fears have grown in recent weeks that Britain could crash out of the European Union without a deal, a worst-case scenario that the Bank of England has previously said could see the British economy shrink by 8 per cent within months and house prices collapse by around a third.

But it said the growth hit was expected to be short-lived, with a recovery in expansion later in 2019 - though this is based on a Brexit deal being reached by March 29.

The MPC also trimmed its economic growth forecast, to 7.2-7.4 percent during April-September from its previous 7.5 percent estimate.

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.

Assuming a smooth Brexit, policy makers reiterated that limited and gradual rate increases will be necessary.

Investors now see nearly no chance of a quarter-point rate move by the end of the year.

It forecasts recent drops in oil prices to see inflation - now at 2.1 per cent - ease back below its 2 per cent target for much of 2019, but pick up again further out due to domestic pressures, such as wage growth.

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