RBI May Cut Interest Rates On Thursday

The Monetary Policy Committee meet which began on Tuesday, will conclude on Thursday with the likelihood of a 25 basis points cut.

RBI May Cut Interest Rates On Thursday

The RBI has cut interest rates several times now, without any significant improvement in growth prospects. It would be the sixth straight time that the country's central bank would be cutting interest rates taking it to 4.9 per cent.

Unlikely to propel growth

Economic growth has slumped and GDP was just 4.5% in the September quarter, its weakest pace since 2013, despite a cumulative 135 basis points cut in policy rates this year.

Banks which have been grappling with non performing assets have not passed on all those cuts to the customers. So transmission has not been happening and unless that happens one cannot expect growth to recover.

Worries over inflation

The main worry for the RBI is that inflation is back and the primary aim of the country's central bank is to tame inflation.

In fact, consumer price inflation rose to 4.62 per cent in October, breaching the 4% target for the first time since July 2018. This is not good news for the central bank and it has to look at inflation as well.

The RBI is also expected to lower its GDP forecast after most agencies doing so on the back of poor data that is emanating, including high frequency data.

It is likely that the country's central bank would pause after the rate cut on Thursday. The pause is likely to be a long one, given that inflation has been rising above the comfort zone of the country's central bank.

All in all it looks certain that the RBI would cut interest rates for the sixth straight time. Whether this would translate into an increased off-take for credit only time would tell. What's most important is that the banks should transmit the rates to the end consumers and should correspondingly cut rates.

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