The prospect of an economic slowdown came to the forefront after the Reserve Bank of India cut the GDP forecast by a notch to 6.9 per cent for 2019-20. Bankers and analysts, who were initially bemused with a 35 basis point rate cut on Wednesday, said they expect further rate cuts, and called for better transmission of monetary policy and remained cautious on economic growth.

“The RBI decision to cut repo rates by an unconventional 35 basis points is perhaps a recognition that monetary policy works best with unanticipated surprises to the market,” said State Bank of India Chairman Rajnish Kumar, adding that the RBI has unveiled a host of bazooka measures to arrest the recent growth pangs.

SBI also announced a cut in repo-linked lending rate by 35 bps and MCLR by 15 bps effective August 10.

Sunil Mehta, Chairman, Indian Banks’ Association, and Managing Director and CEO, Punjab National Bank, said the reduction in repo rates, along with continued accommodative stance on liquidity, is a clear direction to spur growth and increase the credit flow to the needy and productive sectors.

“The RBI has painted a reasonably gloomy picture for the economy, and the 35 bps cut seems to suggest that it concedes the fact that the extent of the slowdown is sharper than it had projected earlier, although it does not see the need to push the panic button (that a 50 bps might have been interpreted as),” said Abheek Barua, Chief Economist, HDFC Bank.

SS Mallikarjuna Rao, Managing Director and CEO, Allahabad Bank, said the unchanged policy stance is an indication that the RBI may not hesitate to go for another round of rate cut in the current fiscal if the economy demands.

More rate cuts likely

Pranjul Bhandari, Chief Economist, HSBC India, said it expects two more 25 bps rate cuts over the fourth quarter of 2019 and first quarter of 2020, making it a 160 bps rate-cutting cycle (over the February 2019 to March 2020 period).

“The RBI’s explicit emphasis on prioritising a growth recovery and expectations of one-year ahead inflation remaining well below 4 per cent, gives us further confidence in our call,” she said.

Noting that there has been a continued downward revision in 2019-20 GDP growth estimates by the RBI for the third time in a row to 6.9 per cent currently from 7.4 per cent, Shubhada Rao, Chief Economist, YES Bank, said: “More importantly, since the RBI ascribes downside risks, the possibility of further downward revision to its FY20 growth estimate appears likely.”

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