There are grim chances of RBI announcing any major cuts in the lending rates.
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will on Thursday (February 6) announce its sixth and last monetary policy for the current financial year, i.e. FY19-20.
The MPC resolution of the RBI will be placed on the website at 11.45 AM on February 6, 2020. will announce its decision whether it will cut or keep the benchmark lending rates unchanged on Thursday. The RBI committee, which is led by Governor Shaktikanta Das, announces its decision on a bi-monthly basis.
Rate cuts seem unlikely this time. The central bank has already slashed its key lending rate or the repo rate in five consecutive cuts. In view of that, there are grim chances of RBI announcing any major cuts in the lending rates. Experts say the MPC members are going to have a tough time as slowing economy makes the case for reduction in repo rate difficult while rising inflation and higher fiscal deficit will require the central bank to either hike the rate or maintain a status quo.
The committee has been tasked by the government to tame retail inflation based on Consumer Price Index (CPI) at 4% (+- 2%).
The retail inflation that for several months remained in the comfort zone of the central bank has started inching up and crossed the 7 per cent mark during December 2019. In December, retail inflation peaked to a five-year high of 7.3, mainly due to costlier vegetables, specifically onion and tomato.
The government has estimated India's gross domestic product (GDP) to be growing at a slower pace of 5% in the current financial year on the back of various factors, domestic and global, including weakening consumer demand in the country.
The Economic Survey 2019-20 has projected the Indian economy to grow at around 6-6.5% in the next financial year beginning April 2020.
"With fiscal policy taking a growth-supportive role, on the back of monetary policy being ahead of the curve last year, the calibrated policy mix should bode well for growth.
"We look for the central bank to remain on an extended pause on rates (even as supply-induced shocks dissipate) but maintain an accommodative bias to ensure the cost of capital remains stable and favourable," Radhika Rao, senior vice-president and economist, DBS Group Research, said.
Crisil Ratings in its post-Union Budget 2020-21 comment has said, "Monetary policy has done its bit, but with moderate and slow success."
It added that the RBI cut the repo rate cumulatively by 135 basis points (bps) through calendar 2019, but lending rates tarried with just nearly 50-bps decline. "Even as credit demand has fallen, risk aversion and weak sentiment have affected the willingness to supply credit, too."
In its previous monetary policy review in December, the RBI had decided for a status quo, leaving the key repo -- the rate at which it lends to banks -- at 5.15%
Monetary policy is the macroeconomic policy laid down by the RBI, which constitutes the management of money supply and interest rates. The central bank tweaks interest rates to achieve macroeconomic objectives such as liquidity, consumption, and inflation.
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