RBI may initiate one more Rate Cut

BE/RBINOTE/26/2019

It is likely that Reserve Bank of India, the Regulator of the country is likely to cut interest rates once more in the coming June.

1. It is hoped that this cut would possible before the rising inflation pressures and increased fiscal deficits, which may not see any route for any way of accommodating in the rest of the period of this year.
2. It may be recalled that RBI had cut interest rate by 25 basis points each in February and April this year to boost economic growth.
3. RBI possible would tighten its monetary policy stance in the early to mid-part of 2020, as per reports of Global Monetary policy actions and resulting Economic Impact, London.
4. Now there is a glut in domestic and global growth and added to this, the inflation in India also remains below RBI’s inflation target, there is a possibility of a rate cut by RBI in the coming June.
5. The report further adds that Post June high inflation and fiscal deficits would mean less possibility of further rate in the year 2019 and the monetary policy would be tightened by mid-2020.
6. Adequate support to growth during the first half of 2019-20 fiscal is predicted with the following conditions viz
   1. an easing monetary policy
   2. relaxation in lending conditions and
   3. more room for fiscal spending in the first Quarter of 2019
7. Further, the report foresees an increase in the food and fuel prices in the coming months if there is a sub-normal monsoon with an increase in inflation to cross 5% mark by second half of 2019 and an average 4.2% in 2019 and 5.3.% in 2020.
8. Also, the increase in growth in 2017 led some key central banks to go for a steady-albeit slow tightening of monetary policy.
9. With the growth during first half of 2018, tightening continued. The rising trade tensions and global fall in manufacturing led to a weakened growth during second half of the year.
10. Few of the Central banks like People’s Bank of China and RBI have started to ease the position, and others may follow the suit.
11. Lack of further tightening and easing the position will help to stabilise growth and curb further slowing down. Long term interest rates in several parts of the world could further fall as per the report.