More rate cuts to be seen: RBI
India’s third-largest economy is slowing down at a fast pace which suggests RBI yet another rate cut of the year. The main focus of Governor Shaktikanta Das and RBI is to generate investment and consumption after the growth rate has lowered down to a five-year at the beginning of 2019. The US Federal Reserve turned warmly and accepted the case hence strengthening the case for policymakers to switch to an “accommodative” stance.
The RBI was the first to ease down the interest rate as Das had identified the growth risks facing the economy very early. Since then, the other central banks followed the same trend of lowering down their rates keeping in view the worsening condition of US-China trade war. Some important benchmarks by RBI are- repurchase rate cut down to 5.75% from 6%; GDP growth forecast for the fiscal year 2020 cut to .00% from 7.2%; CPI forecast for the first Half year is revised to a range of 3-3.1% from 2.9-3%.
While inflation has stayed below the 4% midpoint of the central bank’s inflation target for nine months, economic growth has lost momentum, slowing for a fourth straight quarter to 5.8% in the three months to March. The government has turned to the central bank for support for budget to provide fiscal stimulus. “When we have very little room on the fiscal side, which is already on the higher end, slightly more accommodative monetary policy can support growth, especially when inflation risks are contained," said Anubhuti Sahay, head of South Asia economic research at Standard Chartered Plc in Mumbai.
“Transmission of the rate cuts will be key, and the RBI should aim to maintain the liquidity, at least, at neutral over the next few months," said Suvodeep Rakshit, a senior economist at Kotak Institutional Equities Ltd. in Mumbai.