RBI mulls over domestic consumption and repo rate

The Reserve Bank mulls to lower the benchmark repurchase (repo) rate by a 25 basis point to 5.5%. Mounting pressure from the finance minister has the six-member monetary policy committee in flux as she pushes for a “significant cut” to lift economic growth from a five-year low.

According to a survey by Bloomberg, who surveyed all of 36 economists, stated that a reduction of a minimum 50 points basis by the end of the year is inevitable.

Another quarter-point cut will take the benchmark rate to the lowest in almost a decade. The last rate cut was introduced in the year 2010, with the current status of the economy, the central bank may keep the rates lower for longer.

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Pranjul Bhandari, chief India economist at HSBC Holding Plc in Mumbai remarked that he expects a 75 basis point of additional rate cuts spread across 2019 and 2020.

Will the reforms be data-dependent?

The economy is yet to recover from the current slump. Consumption has not picked up pace and high-frequency indicators – reduction in car sales and the contraction in exports and imports goods – suggest the economy is a long way from to recovery.

The growth rate for the economy has been only 5.8% for the first three months. Add to this the failing monsoon, the NBFC crisis, the looming unemployment and the consumption rates have added to the economic worries making it extremely challenging to implement any reform with a fruitful outcome.

RBI governor Shaktikanta Das in an interview last month suggested that policy action or any reform introduced will most likely to be heavily data-dependent.  He also indicated that MPC has already delivered 100 basis points worth of easing as he equated a switch to an accommodative stance to a 25 basis-point cut. However,  incoming data also doesn’t show any formidable signs of improvement to the economy.