The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is widely expected to cut rates for the sixth consecutive time in the upcoming policy, as it looks to support weakening economic growth, according to a poll conducted by CNBC-TV18.
Nine out of the ten economists polled by CNBC-TV18 said that they expect a quarter of a percentage point cut in the repo or repurchase rate, which is the rate at which the regulator lenders money to banks, which will bring it down to 4.90 percent from 5.15 percent currently. Only one economist said that the MPC may cut the repo rate by 15 basis points. One basis point is a hundredth of a percentage point.
Six out of ten economists expect this cut to be the last one for the current financial year, but three expect a total of 40 basis points cut before the close of the fiscal, as per the poll.
The repo rate has been cut five times this year, totaling 1.35 percent or 135 basis points. With the regulator forcing banks to link their lending rates to an external benchmark, a cut in repo rate would result in a direct rate reduction for borrowers.
Half the respondents to CNBC-TV18’s poll said they expect the FY20 GDP growth forecast of the RBI to be revised downwards to 5.50-6 percent, and the other half expected it to be lowered even further to 5-5.40 percent. RBI is also expected to lower its FY21 GDP growth forecast, as per CNBC-TV18’s poll. Five out of ten economists polled said that the FY21 GDP growth projection may be lowered to 6.50-7 percent.
India’s growth rate slowed down to 4.5 percent in the September quarter, hitting a six-year low on the back of weak consumer demand and slowing manufacturing activity. Economists believe that the flagging growth would drive the MPC to go for yet another cut, despite the consumer price inflation breaching the sacrosanct 4 percent target for the first time since July 2018.
Inflation, as measured by the consumer price index, quickened to 4.62 percent in October, compared to 3.99 percent in the month of September.
In its October policy, RBI projected CPI inflation at 3.5-3.7 percent for the second half of the fiscal year 2019-20 and to 3.6 percent for the first quarter of FY21. All ten economists polled said that the CPI estimate for the second half of FY20 will have to be raised, and nine of out ten expect the Q1 FY21 CPI projection to be raised as well.
However, all the respondents expect RBI’s monetary policy committee to look through this rise in inflation above the 4 percent targeted mark this time around. The tone of the policy is largely expected to be similar to the October policy, as per the respondents.
The MPC will be meeting from December 3 to December 5, and the resolution of the committee is expected to be made public at 11.45 am on Thursday, December 5.
First Published: IST