The government anticipates that a helping hand against the RBI in the shape of interest rate cut in the upcoming monetary policy review on Wednesday to boost expansion which dropped to a three-year low of 5.7 percent in the June quarter.

The government anticipates that a helping hand against the RBI in the kind of interest rate cut in the upcoming monetary policy review on Wednesday to boost expansion which dropped to a three-year low of 5.7 percent in the June quarter.

Many specialists and industry bodies too have made a powerful case for lowering of the vital interest rate in view of subdued inflation and the urgency to propel economic development which seems to be reeling under the impact of demonetisation and GST implementation.

According to a SBI file, that the RBI is likely to maintain status quo on key lending rate in its October 4 policy decision as it is “stuck in a conundrum” of low expansion, mild inflation and international uncertainties. It said that against the background of flexible inflation targeting, the more obvious question which arises is choosing between — that the movement towards the four percent inflation goal swiftly or staying in the inflation group.

“We expect that the RBI to remain on hold in the upcoming meeting as rising incoming inflation and projections of additional acceleration in inflation forward will indicate that there will be limited space for more easing,” Morgan Stanley said in the study note.

Last week, a top finance ministry official said there is scope for an RBI rate reduction in the next policy review because retail inflation continues to be reduced.

In its final policy review in August, the RBI reduced the repo rate by 0.25 per cent to 6 per cent in August, citing reduction in inflation risks. The rate cut was the first in 10 months and introduced policy rates to some close seven-year low.

But, retail inflation climbed to some five-month high in 3.36 percent in August due to costlier vegetables and fruits.

India Inc has already made a pitch for speed cut by RBI to match economic activity.

Assocham has written to the Reserve Bank of India and the Monetary Policy Committee to reduce down the interest rates at least by 25 basis points, given the challenges being faced by the market which requires immediate steps for revival of expansion. “At least 50 bps elbow space could be obtained with regard to 3.2 percent fiscal deficit for the current season and the upcoming financial year,” the chamber said.

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