The Reserve Bank will slash rates for the third time in a row, based on the economic growth which dropped to a five-year low in the final quarter of 2018-19, opined experts.
The RBI’s Monetary Policy Committee (MPC) is ready to announce its bi-monthly policy on Thursday amidst Narendra Modi-led government starting its second term. The central bank had cut the short-term lending rate (repo rate) by 25 basis points each in its last two policy reviews.
The MPC headed by RBI Governor Shaktikanta Das will meet for three days starting June 4 to firm up the second bi-monthly monetary policy of the fiscal.
India’s largest bank SBI in a recent research report had said that the RBI needs to go in for a larger rate cut, more than 25 basis points, in the next monetary policy review in June to reverse the current slowdown in the economy.
Based on expectations from the MPC, CII Director said the RBI needs to work on lowering interest rates in order to provide a stimulus to the economy.
It is needed to address the slowdown in production and sales across consumer goods categories including segments such as passenger cars, two-wheelers as well as non-durables, he said, adding that if the inflation is still far below the RBI’s target of 4 per cent, there will be ample room for a reduction in the policy rate.
Without making any judgement on a rate cut by the RBI, the Finance Secretary said there has been a reduction in the policy rate in the last two policies announced since February.
It is up to the Monetary Policy Committee to take a view on policy rate taking into consideration low inflation and moderation in economic growth.
Inflation is much lower than the target, he said, adding that core inflation is now on a decline.
India’s GDP growth saw a five-year slow down at 5.8 percent in the fourth quarter of 2018-19 mainly due to the poor performance of agriculture and manufacturing sectors.
