The Reserve Bank of India (RBI) has brought the repo rate down to 5.4% by cutting 35 basis points. The RBI has chosen to reduce the repo rate with intent to increase the output of the economy. This move is expected to boost consumption, which in turn enhances the number of investors. Also, the new GDP forecast growth is 6.9%, down from 7%.
A slowdown in the economic growth coupled with global factors such as the trade tension between the United States and China has added more concerns for the government to deal with. Also, devaluation in the Chinese Yuan has turned out to be a hard pill to swallow for the Indian government.
The uncertainty of the Brexit and challenges in the Middle East have only added more worries for the ailing Indian economy. The global economic situation has worsened to the extent that it has put the USD 14 trillion bond markets of the developed nations to trade in adverse terrain.
As per RBI, the inflation rate for the next year is forecasted to be at 3.6% and hence, the real rate would be 1.8% (5.4%-3.6%). A further downgrade in the repo rate in the near future can be expected as global uncertainty would have its say on the Indian economy and only lowering repo rate is capable of handling slowing GDP growth.
The corporate debt has touched new levels, and a staggering number of corporate defaults have led to mistrust amidst the potential lenders. Due to this, banks are not confident of lending to HFCs, NBFCs, and other similar financial companies. Redemption of these companies is critical as they have a direct impact on the economy to grow at a rapid pace.