Rate cut by RBI: The government will announce the Monetary policy today and as many as sixty experts are expecting the RBI to impose a 25 bps rate cut while six others say that it may be as high as 50 bps as per Reuters’ survey. The Monetary Policy Committee meeting for deciding on the monetary policy highlights began on Tuesday.
Experts expect 25 bps to 50 bps rate cut by RBI
Last time the RBI head altered the monetary policy, the repo rate was cut by 25 basis points making it a six-year low of 6.25%.
“we expect that RBI may go for a 25 bps rate cut in the upcoming policy” – Canara Bank Managing Director and Chief Executive Officer Rakesh Sharma.
“Given the concerns about demonetisation and the slowdown it is likely to generate in sectors that have traditionally been cash dependant, such as consumption goods, the RBI will try to cushion the blow with a rate cut.” – Shilan Shah, Capital Economics(Singapore)
After the adoption of demonetisation policy by the government, the economy has been adversely affected; with dwindling cash in hand with the masses, the situation has been worsened by the shortage of cash at ATMs and banks. The cash crunch in the economy has led the RBI to cut down the repo rate as it seems to be its last resort to stabilise the condition of the economy post demonetisation.
“Even as inflation remains in a comfortable territory of around 4 percent (March-end forecast of 4.6 per cent), the RBI could hold back on cutting the policy rate by a considerable margin.” – HDFC Bank
Experts are of the view that in the current scenario, it would be most appropriate for the apex bank to impose a higher rate cut to enhance liquidity in the economy which would ease the financial crunch.
Expecting a rate cut by RBI, the Bank of India and Bank of Baroda have already cut the lending rates ranging between 5 to 20 bps.