The Reserve Bank of India (RBI) is looking to cut key lending rates by another 25 basis points on Thursday to boost economic activities amid fears of global slowdown impacting domestic growth prospects, experts said.
In February, the RBI had reduced the repo rate by 25 basis points after a gap of 18 months. A back-to-back cut in interest rate would provide relief to borrowers in the election season.
The six-member Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das will meet for three days in Mumbai and announce the decision on the interest rate on April 4. It would be the first bi-monthly monetary policy of 2019-20.
Das has already held meetings with stakeholders including industry bodies, depositors association, MSME representatives and bankers.
The industry is pushing for another rate cut as the inflation is well below the RBI’s mandate of 4 percent and need for the boosting economic growth is pressing.
V K Sharma, Head PCG and Capital Markets Strategy at HDFC Securities, said the market has factored in a 25 basis-point cut and a change in stance to accommodative from neutral, adding that the expected increase in liquidity and cut in interest rates auger well for the market.
A president of a commercial bank said global and local factors will guide future policy action. Adding that consumption has slowed down a bit and the investment cycle is still slow.
He said there could be a likelihood of another 25 basis-point rate cut later in the year, but that would be dependent on inflation and growth data. The central bank will keep an eye on the post-election budget, monsoons and oil prices.
Director General of CII Chandrajit Banerjee said the inflation trajectory has remained benign which further warrants a reduction in interest rate.
He said in view of the visible signs of a growth slowdown in the second half of 2018-19, it is requested that the RBI should reduce the repo rate by at least 25 basis points in the upcoming policy and maintain a softening trend in monetary policy.
Banerjee was also said in an order that the rate cut be effectively transmitted to banks, a reduction in the cash reserve ratio (CRR) is also recommended so that it frees up banks cash for lending purposes.
The MPC also includes two representatives from the central bank and three external members, which will take into account the data on retail inflation, industrial production and global economic outlook while arriving at its monetary policy.
Subdued performance of the manufacturing sector, especially capital and consumer goods, had dragged down the growth in industrial production to 1.7 percent in January from 7.5 percent a year ago. The data on the Index of Industrial Production (IIP) for February is yet to be released.
Retail inflation based on the Consumer Price Index (CPI) continues to remain below 4 percent. It was 2.57 percent in February year-on-year.
China, which is one of India’s largest trading partner, recently lowered its economic growth target amid slowing global economy and effects of a trade war with the US.
As per the US commerce department, the American economy was up 2.2 percent in fourth quarter of 2018, lower than the 2.6 percent estimated earlier
