Mumbai: The Reserve Bank of India is likely to go for yet another rate cut today, the fifth in a row, as inflation is within the comfort zone and the need to boost the economy is pressing.
RBI Governor Shaktikanta Das has already hinted that benign inflation provides room for further monetary policy easing while space for fiscal space is limited.
The government has announced a series of measures including steepest cut in corporate tax, rollback of enhanced surcharge on Foreign Portfolio Investors, among others to jump-start growth which hit a six-year low of 5 per cent during the first quarter of the current fiscal.
The six-member Monetary Policy Committee (MPC) is scheduled to announce the fourth bi-monthly monetary policy for 2019-20 today after a three-day meeting.
The upcoming MPC meeting comes in the backdrop of RBI’s mandate to banks to link their loan products to an external benchmark, like repo rate, for faster transmission of reduction in policy rates to borrowers, from October 1. Ahead of the meeting, the Das-headed Financial Stability and Development Council (FSDC) sub-committee took stock of the prevailing macroeconomic situation.
At its last meeting in August, the (MPC) reduced the benchmark lending rate by an unusual 35 basis points to 5.40 per cent. The central bank has already slashed repo rate four times consecutively this year amounting to 110 basis points in aggregate. Shanti Ekambaram, President, Consumer Banking, Kotak Mahindra Bank, said with inflation still within the RBI’s medium-term target of 4 per cent, the MPC has the headroom to cut the repo rate further.
“However, the recent volatility in crude oil prices and the fiscal measures announced by the government will have an impact on inflation in the medium term and the fiscal deficit. Hence, we expect the MPC to be more measured in its response with a rate cut of 20-25 basis points in the October policy,” she said.
Earlier, the RBI Governor had said that the government has little fiscal space, giving hope that the central bank may provide more monetary stimulus to prop up the economy. The government’s fiscal space has been squeezed on account of cut in rates of corporate tax as well as lowering of GST rate on various goods. Revenue collection too has been below the Budget estimates.
Experts are of the opinion that another rate cut is on the cards as the government’s hands are tied and the onus of taking initiatives now rests with the central bank.
