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Reserve Bank India (RBI) to go for another rate cut to spur growth

Reserve Bank India (RBI) to go for another rate cut to spur growth

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  6 Jun 2019 6:02 AM GMT

New Delhi/Mumbai: A booster dose in the form of further rate cut is expected from the Reserve Bank to rekindle economic growth which has been stunted by low demand, receding production and stagnant wages.

Economy watchers contend that subdued food prices coupled with growth concerns allows RBI to aggressively cut key lending rate.

Market observers have prescribed a range between 25 and 50 basis points to bring down the cost of finance and give impetus to consumption growth.

Overall, the apex bank might cut repo rate by 75-100 basis points throughout this fiscal, if inflation target remains in sight. RBI's medium-term target for consumer price index (CPI) inflation is of “4 per cent within a band of +/- 2 per cent”.

“Slower growth and lower inflation has given the RBI room to go in for a repo-rate cut,” Sunil Kumar Sinha, Director – Public Finance and Principal Economist India Ratings and Research (Fitch Group), told IANS.

“We expect that there might be 25 basis points reduction in the repo rate, but the apex bank can also go in for a larger cut. However, progress of Monsoon and global crude oil prices will be key factors to determine the magnitude of the rate cut.”

According to State Bank of India’s Group Chief Economic Adviser Soumya Kanti Ghosh, a large rate cut coupled with specific instructions on liquidity coupled with a budget laying down a manageable fiscal consolidation road map will help rev up the economy.

The expected rate cut assumes significance as the overall economic growth rate in Q4, 2018-19 has slowed.

In addition, macro economic indicators like core industrial production and automobile sales have slumped.

Consequently a monetary policy easing should allow banks to reduce their lending rates and help both consumers and the industry to get cheaper finance.

Importantly, a faster transmission of earlier policy easing by lenders is also required, as high interest rates and liquidity constraints have demoralised auto, home and capital goods buyers. (IANS)

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