RBI's MPC meeting starts with expectation of another rate cut

The Monetary Policy Committee headed by RBI Governor Shaktikanta Das Monday started deliberations on the third bi-monthly policy review of the current financial year, amid expectations of yet another 25 basis points cut in lending rate to boost the slowing economy. The central bank has already reduced the repo rate three times in the last as many MPC meetings.

"The MPC will meet during August 5 to 7, 2019, for the Third Bi-monthly Monetary Policy Statement for 2019-20. The resolution of the MPC will be placed on the website at 11.45 am on August 7, 2019," the RBI has said in a statement. Besides rate cut, the industry also expects the six-member MPC to take steps to improve liquidity situation and also ensure transmission of rate cuts to borrowers by the banks.

Meanwhile, Finance Minister Nirmala Sitharaman on Monday reviewed performance of banks with top management of public sector lenders and major private banks. On expectations from MPC, Union Bank of India Managing Director and CEO Rajkiran Rai G said the MPC is likely to cut rate by 25 basis points.

"At this point of time, we need growth impetus. I am sure they will reduce rates," he said. Industry body CII in a statement said the central bank started its interest rate easing cycle in February 2019, taking cognizance of the headwinds to growth and inflation reading remaining below the RBI's target of 4 per cent.

However, the transmission of the rate cuts to the end-consumers has remained gradual and relatively lower than the repo rate revisions, it said. The CII had said the RBI should cut cash reserve ratio (CRR) by 50 bps which will release around Rs 60,000 crore into the system.

"This along with infusing liquidity in the banking system will also reduce the burden on banks' resources, given the fact that currently, the credit-deposit ratio is hovering at a high of 77-78 per cent," it added. When asked for expectations from the MPC, Anshuman Magazine, CBRE's chairman and CEO for India, South East Asia, Middle East and Africa had said that in the light of increasing investor confidence and consumer spending, the economic sentiments are currently looking up.

India's retail inflation marginally accelerated, following the third consecutive policy rate cut by the RBI to 25 bps, he said. "We expect several industries and sectors, including real estate, to pick up in the coming times and register substantial growth in the latter part of the calendar year," he added.

In its June policy review, while reducing the rate for the third time in a row, the RBI had signalled more easing as it looked to support an economy growing at the slowest pace since the BJP first came to power in 2014. Shanti Ekambaram, president (consumer banking), Kotak Mahindra Bank, also had said the central bank is likely to cut the repo rate by 25 bps.

"It will be important to study the policy narrative to get a direction of likely future action by the RBI, liquidity measures, any other structural changes etc. Suffice it to say that inflation will be the central theme balanced with the need to boost growth," Ekambaram added. While inflation continues to remain within the RBI's comfort zone, key indicators like automobile sale and almost flat growth in the eight core sector industries showing signs of a slowdown.

The country's economic growth rate slowed to a five-year low of 5.8 per cent in the January-March quarter of 2018-19, due to poor performance in the agriculture and manufacturing sectors. According to the Central Statistics Office, GDP growth during 2018-19 stood at 6.8 per cent, lower than 7.2 per cent in the previous financial year.

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