INSUBCONTINENT EXCLUSIVE:
Some economists even expect a bigger rate cut by the RBI today
The Reserve Bank of India will in the
next few hours reveal the outcome of its fourth bi-monthly policy review
Many economists expect the six-member Monetary Policy Committee, chaired by the central bank Governor Shaktikanta Das, to once again lower
the key interest rates, given the consumer inflation reading remaining well within the RBI's medium-term goal for 13 months in a row
If that prediction comes true, it would make today's cut in the repo rate a fifth so far this year
The MPC has reduced the repo rate - the key rate at which the RBI lends short-term funds to commercial banks - by 1.1 percentage point in
four bi-monthly reviews so far this calendar year
Here's what to expect from the RBI policy statement today:The RBI is predicted to lower its key lending rate by at least 25
basis points to 5.15 per cent, which would take cumulative cuts so far this year to 135 bps, according to news agency Reuters.In the August
review, the MPC reduced the repo rate by 35 basis points, following three bi-monthly reductions of 25 basis points each."After all the
measures taken by the government to revive the economy it may be expected that the RBI will reduce rates by 25 bps most probably," Madan
Sabnavis, chief economist, CARE Ratings, told TheIndianSubcontinent.The RBI currently has an "accommodative" stance on policy which rules
out rate hikes in the near term
It switched to the current stance from "neutral" in June.In August, consumer inflation accelerated to a 10-month high of 3.21 per cent, but
continued to remain within the central bank's medium-term target of 4 per cent since July 2018
"There is scope for further easing may be up to repo rate of 5 per cent by the end of the year if the economy is sluggish and inflation
under control," CARE's Mr Sabnavis added
( RBI sees retail inflation at 3.5-3.7% in second half of 2019-20)Some economists even expect a bigger rate cut this time around,
considering its lower growth forecast
( Fixing weak growth highest priority, says RBI)"We pencil in a 40 bps of rate cut which should be a signal to the market that the MPC is
not quite done as it front loads the remaining couple of rate cuts in the cycle," said Suvodeep Rakshit, vice president and senior
economist, Kotak Institutional Equities.The RBI in August lowered its GDP or gross domestic product growth projection for 2019-20 to 6.9 per
cent from 7 per cent, underlining the need for addressing growth concerns by boosting aggregate demand.From October 1, the RBI mandated
banks to link floating rate loans with external benchmark rates - such as the repo rate - in order to aid better rate transmission, after
months of banks passing on very little benefit of the lower key rates to the end-consumer
Credit ratings major Moody's has said the move is credit negative for the banks
A larger rate cut will also help in quicker transmission of lower rates by banks, said Mr Rakshit.The RBI Governor has maintained that
future rate cuts will depend on incoming data
"We cannot have lower interest rates like in advanced economies," he said last month.Get Breaking news, live coverage, and Latest News from
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