The Reserve Bank of India's (RBI) Monetary Policy Committee may go for another repo rate cut in today's bi-monthly policy announcement to spur growth in the sluggish India economy. Under Governor Shaktikanta Das, the MPC will announce its fourth monetary policy for the financial year 2019-20. Analysts say the RBI could go for anywhere between 25 to 40-basis-points cut, its fifth straight cut since Das took over as the central bank Governor.
The apex bank's decision to cut repo rates further could be in sync with the government's recent measures, including a reduction in the corporate tax, to promote credit offtake to boost economic activity during the festive season amid the ongoing slowdown.
In its August MPC meet, the RBI had surprised everyone by going for a 35-basis-point cut. This time, say, experts, the cut could go up to 40-basis-points. Even if the RBI goes for 25 basis points (bps) cut in key lending rates, the move will take cumulative cuts so far this year to 135 bps.
However, some are also saying the repo rate cut could be higher this time. "With current inflation remaining benign, we expect RBI to opt for a 40 bps rate cut at its policy review later this week in a bid to continue its support toward growth revival," said Yuvika Oberoi, an economist with Yes Bank in Mumbai, told Reuters.
The central bank has already slashed the repo rate (short-term borrowing rate) four times aggregating to 1.10 percentage points since January. At its previous meeting, the MPC had reduced the benchmark lending rate by an unusual 35 basis points to 5.40 per cent.
Today's MPC meet comes in the backdrop of the RBI's mandate to banks to link their loan products to an external benchmark, like repo rate, for faster transmission of reduction in policy rates to borrowers from October 1. Ahead of the meeting, the Shaktikanta Das-headed Financial Stability and Development Council (FSDC) sub-committee took stock of the prevailing macroeconomic situation. Earlier, the RBI Governor had said the government had little fiscal space, giving hopes that the RBI might provide more monetary stimulus to prop up the economy.
India's falling GDP numbers are a major concern for the apex bank. India's economy grew by merely 5 per cent in the April-June quarter, down from 5.8 per cent in the previous quarter. Registering a continuous downward spiral, the GDP growth for the first quarter of FY20 has been slowest in more than six years. The previous low in GDP growth was recorded at 4.3 per cent in the January-March quarter of 2012-13. The RBI's rate cut announcement today could give much-needed hope for the revival of the economy.
Edited by Manoj Sharma