In five reductions in 2019 so far, the RBI has cut the repo rate by 135 bps, over concerns that growth momentum is slowing down.
The Reserve Bank of India (RBI)'s Monetary Policy Committee is all set to meet on Thursday to review the financial situation of the country and suggest measures to boost the struggling economy. The MPC resolution will be posted on the RBI official website at around 11:45 AM. It is widely expected that the Committee might, in fact, end up slashing repo rates yet again with an intention to boost equity indices, which would make it the sixth consecutive time that the RBI does so in the short-term lending rate in 2019. Investors in the equity market will be watching the Committee's decision with a keen eye, as it could spell numbers amid concerns over the declining Gross Domestic Product (GDP) growth rate and a slowing economy.
The Committee on October 4 announced the fifth consecutive rate cut this year, slashing its key lending rate or repo rate by 25 basis points (bps) to 5.15%. In five reductions in 2019 so far, the RBI has cut the repo rate by 135 bps in cumulative cuts so far this year, over concerns that growth momentum is slowing down and also to try to boost liquidity in the financial system.
"The market is cautiously awaiting RBI monetary policy meeting to be held tomorrow where it expects the central bank to deliver its sixth rate cut of the year despite higher inflation. 25 bps rate cut is already factored in by the market and thus investors would watch out for any surprise on that front and the commentary on the future path," said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
Repo rate is the rate at which the RBI lends money to commercial banks. A repo rate cut allows banks to reduce interest rates for consumers and lowers equal monthly instalments on home loans, car loans and personal loans.
Earlier, the RBI Governor, Shaktikanta Das, had hinted that benign inflation provides room for further monetary policy easing while space for fiscal space is limited.
GDP growth of India slipped to 4.5% in the 2nd quarter of FY20. It marked the slowest expansion in 26 quarters. It was mainly on account of weak manufacturing and a drop in exports due to a global slowdown. Expressing concern over the situation, former Prime Minister Manmohan Singh said that the state of our economy is 'deeply worrying'.
Contributing to the slowdown, the output of eight core sectors of the Indian industry – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, and electricity – declined by 5.8% in October, according to data released by the Ministry of Commerce and Industry on Friday.
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