INSUBCONTINENT EXCLUSIVE:
The RBI has lowered its growth forecast for the current fiscal year four times alreadyThe Reserve Bank of India is set to deliver its sixth
straight interest-rate cut Thursday, shrugging off a spike in inflation as it stays doggedly focused on supporting economic growth.While all
34 economists surveyed by Bloomberg News as of Wednesday expect a reduction, the majority expect a quarter-point cut, with the rest
expecting reductions of 15 basis points to 50 basis points
The RBI has cut borrowing costs by 135 basis points so far in 2019 to a nine-year low of 5.15 per cent.The meeting of the six-member
Monetary Policy Committee led by Governor Shaktikanta Das, who completes one year in office next week, comes amid deepening concerns about
growth, financial stability and weak public finances.The policy decision will be announced at 11:45 a.m
in Mumbai, followed by a press conference 15 minutes later by Das
Here's a look at what else to watch out for:Growth TrajectoryThe RBI has lowered its growth forecast for the current fiscal year four
times already, with the latest revision in October pegging expansion at 6.1%
Data since then has shown gross domestic product expansion slowing to 4.5% in the July to September period, the weakest pace in more than
six years."With no imminent signs of a turnaround, we expect the RBI to cut rates by 25 basis points at its December meeting," said Teresa
John, an economist at Nirmal Bang Equities Pvt
in Mumbai.The July-September period saw economic slack deepen, with manufacturing contracting
A purchasing managers survey indicated that activity in the dominant services industry slowed during that period
With surveys for both manufacturing and services in November pointing to a rebound, it's worth watching if and by how much the RBI will
further lower its growth forecast.Flexible InflationThe MPC meets at a time when headline inflation has popped above the RBI's 4%
medium-term target for the first time in more than a year
The acceleration is driven by a spike in food prices, although underlying price pressures -- which strips out volatile food and fuel prices
-- are benign.The rate-setting panel is likely to latch on to the subdued core inflation to vote for a rate cut and keep the outlook
Nevertheless, the central bank may revise upwards its inflation forecast for the fiscal year to March, indicating that room for further
easing is closing.The headline inflation forecasts are likely to stay within the RBI's wider band of 2%-6%."The December policy will, in
some sense, test the 'flexible' portion of the flexible inflation-targeting framework," said Suvodeep Rakshit, senior economist at Kotak
Institutional Equities in Mumbai
"Given the transient nature of food prices, and the sustained decline in core inflation, the MPC will likely continue to focus on the output
gap and growth outlook."Financial ConditionsWhile the RBI has delivered 135 basis points of interest-rate easing this year, lenders have
only transmitted a fraction of that to borrowers
As such, the spread between the central bank's key policy rate and the weighted average lending rate on outstanding loans from commercial
banks is the highest in data going back to February 2012.Demand for loans has slowed and that reflects tight domestic credit conditions amid
what Sonal Varma, chief economist for India and Asia, ex-Japan, at Nomura Holdings Inc., describes as a "triple balance sheet impairment of
corporates, banks and shadow banks."Companies are using money to repay loans instead of investing, banks are exercising caution in lending,
fearing a bad loan pile up, while the shadow banking sector is grappling with a crisis that has seen defaults rise."We expect incrementally
the focus to now shift to government measures on specific sectors and to revitalize the financial sector," Varma said.(Except for the
headline, this story has not been edited by TheIndianSubcontinent staff and is published from a syndicated feed.)
