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

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 wasset up four years ago, according to a newresearch paper.

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

“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 bigsurprise, 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.

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