March Cut Tops Surprises List in India MPC History, Paper Says
A pedestrian walks past the Reserve Bank of India (RBI) building in Mumbai, India. (Photographer: Kanishka Sonthalia/Bloomberg)

March Cut Tops Surprises List in India MPC History, Paper Says

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The Indian central bank’s decision in March to slash interest rates in an unscheduled meeting was the biggest surprise since a Monetary Policy Committee was set up four years ago, according to a new research paper.

The panel’s move to cut the benchmark repurchase rate by 75 basis points caught the market unaware, wrote authors Aakriti Mathur from The Graduate Institute in Geneva and Rajeswari Sengupta of the Indira Gandhi Institute of Development Research in Mumbai. They assessed trends and reactions in overnight indexed swap rates.

March Cut Tops Surprises List in India MPC History, Paper Says

“First, it was an unscheduled meeting, moved up from the originally planned early-April meeting,” Mathur said of the decision, which included the rate-cut as well as other easing measures in response to the pandemic, such as moratoriums on bank loan repayments. “All these three factors combined, implied a large, positive surprise for the financial markets.”

The panel’s decision to stand pat in December, when the market was expecting a rate cut, also qualifies as a big surprise, according to the paper.

India’s rate-setting panel is due to meet in the first week of August, having already cut the repo rate by 115 basis points so far this year as the economy heads toward its first annual contraction in more than four decades.

©2020 Bloomberg L.P.

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