RBI likely to go for straight interest rate cuts

03 Dec

BE/RBINOTE/58/2019

The Reserve Bank may cut interest rates for the sixth straight time on December 5 to support growth that has continued to slip to more than six-year low.
Bankers and Experts say that this was due to the slump in manufacturing.
At its every Monetary Committee Meeting Reserve Bank of India has cut interest after the present Governor took charge.
In five reductions so far in 2019, interest rates have been t lowered by a total of 135 basis points over concerns that growth momentum is slowing down and with a view to boost liquidity in the financial system.
GDP growth slowed sharply to a pace of 4.5 per cent in the July-September and was hit by a slump in manufacturing output which came down by 1.0 per cent.
The pace of GDP growth has moderated from the 5 per cent rate in April-June and 7 per cent in July-September quarter of 2018.
The Governor had previously stated that interest rates will reduce until growth revives which gives confidence that interest rates may be reduced at the end of three-day monetary policy review beginning December 3
With the RBI Monetary Policy Committee having decided to retain an accommodative stance following its October rate cut, further rate cuts are expected to be possible if economic conditions remain weak.
The fall in GDP growth rate was despite a slew of new fiscal policy measures including a large reduction in the base corporate tax rate in a bid to boost private sector investment.

1	Rumki Majumdar, Economist, Deloitte India	Inflation is low and is expected to remain so because of the excess capacity in the economy. This gives the RBI the elbow room to cut rates, which is highly anticipated in the upcoming December meeting. In doing so, RBI may look past the recent uptick in inflation last month, largely attributed to vegetables such as onions. But importantly, there has been a slide in core inflation.
2	Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Ltd.,	We are afraid that expectations of better growth in 3QFY20 (October-December) may not pan out. Leading indicators suggest that October (festival month) was the worst in the current cycle. We believe that growth could weaken further to around 4 per cent in 3QFY20, which will mark the trough. Our full-year growth forecast, thus, is revised down from 5.7 per cent earlier to 4.5 per cent for FY20.
3	Rajiv Biswas, Chief Economist, Asia Pacific at HIS Markit.	With the RBI Monetary Policy Committee having decided to retain an accommodative stance following its October rate cut, further rate cuts are possible if economic conditions remain weak. The fall in GDP growth rate was despite a slew of new fiscal policy measures including a large reduction in the base corporate tax rate in a bid to boost private sector investment.