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With growth pangs taking centrestage at the Monetary Policy Committee Meeting, bankers and analysts said there could be more rate cuts by the Reserve Bank of India in coming months.
“The 25 basis points rate cut, coupled with an explicit policy acknowledgement of further rate cuts, would ensure that fiscal and monetary policy work in tandem in arresting growth concerns. The lowering of the GDP growth outlook also reflects a realistic projection in view of the weak domestic demand, slowing global growth, and the continuing trade tensions,” said Rajnish Kumar, Chairman, State Bank of India.
The MPC, on Friday, cut the repo rate for the fifth straight time by 25 basis points to a nine-year low, and lowered the GDP projection for 2019-20 to 6.1 per cent. “It is in this context that the MPC decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target,” said the fourth bi-monthly monetary policy statement.
Noting that the RBI has reduced the signal interest rate by 135 basis points from February to October this year and that external benchmarking of loans has started this month, VG Kannan, Chief Executive, Indian Banks’ Association, said: “The monetary transmission could be swifter if banks could make similar changes in the deposits.”
He also said banks could expect a pick up in credit demand in the second half of the fiscal with the RBI’s assurance on liquidity and improved domestic demand due to recent government measures.
“Cumulative reduction of 135 basis points in repo rate, along with the recent cut in corporate tax by the government, should help revive growth in the coming months,” said Zarin Daruwala, CEO, India, Standard Chartered Bank.
B Prasanna, Group Head, Global Markets, Sales, Trading and Research, ICICI Bank, said: “Going forward, given the rhetoric that supporting private investment remains ‘highest priority’, we do not rule out further accommodation if growth impulses continue to be slow.”
Crisil Research also noted that the the MPC has decided to continue with its accommodative stance. “This, in conjunction with weak economic outlook, implies that the output gap is unlikely to close soon and another rate cut could be in the offing.”
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