Skip to main content

No Cut in Interest Rate, Only Cut in GDP Estimates

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to keep the interest rate unchanged at 5.15% in the fifth bimonthly policy review, citing inflation concerns despite economic growth continuing to slow down. RBI however reduced GDP estimate to 5%.
All the six members of the MPC voted in favour of keeping the interest rate unchanged.
Cash-starved realtors expressed disappointment over the RBI's decision on Thursday to keep the benchmark lending rate unchanged and said the apex bank should have cut repo rate by 1 percentage point to boost housing sales and economic growth. The RBI Governor told to media that rate cut is not a mechanical exercise and he will first see the outcome of earlier cuts and other measures and then again MPC will think over it.
India Inc. was expecting a rate cut of 100 basis points which would have provided a boost to the government's recent initiatives to kick-start GDP growth. The decision to wait and watch the outplay of previous cuts will go against the current sentiments. RBI's decision to not lower interest rate has come as a surprise and a bit of a disappointment to the industry which was almost sure to have something at least 25 basis points . Lower interest rate would have helped push up credit demand and investment in the economy, aiding overall economic growth. It would have provided much required reprieve to some ailing sectors like real estate and auto. It would have been real estate sector and Auto sector by corresponding reduction in interest rates.
The real estate industry, in particular, has been facing some difficult times and with inventories piling up the need to push demand and encourage purchase is now more than ever, he added.
However as explained by Governor, RBI's decision to keep the repo rate unchanged is an indication towards the government's focus on the evolving inflation-growth dynamics. Mr Das indicated that he will watch the budget but highlighted that RBI and Govt. are on the same page for improving economy.
RBI by keeping the rates unchanged has recognised that the need of the hour is to infuse confidence about the economic growth through a holistic approach. The decision to maintain policy rates augurs well for the economy as the recently introduced policy reforms will take time to pan out and materialise. The economy needs to absorb the impact of the recently introduced reforms and the previous rate cuts. The real estate sector is expected to pick up due to the favourable policy incentives and the faster transmission of previous rate cuts he added.
The Governor told in a media response that liquidity of 50 top NBFCs which covers almost 75 % of exposure is being constantly monitored by the RBI.
                                                          ***************

https://www.linkedin.com/pulse/slow-slownessand-down-shive-prakash-mishra/
Twitter  @shivemishra 
https://www.facebook.com/shiveprakash.mishra


Comments

Post a Comment

Popular posts from this blog

Direct Tax Code (DTC): Income Tax Rationalisation on the Way

The government recently announced tax rate cut for corporates across the board.   This has been done in the backdrop of slowdown in the economy to support the corporates and to attract new investments which are moving towards other emerging economy like Vietnam. This cut is historical in last 28 years. The measure is in line with the recommendations of the much-awaited Direct Tax Code (DTC) report that was submitted to the Finance Ministry in August 2019. The report has not been made public yet. (The Direct Tax Code aims to consolidate and amend the law relating to all direct taxes, namely, income-tax, dividend distribution tax, fringe benefit tax and wealth-tax to establish an economically efficient, effective and equitable direct tax system which will facilitate voluntary compliance and help increase the tax-GDP ratio. Another objective is to reduce the scope for disputes and minimize litigation. All the direct taxes have been brought under a single Code and compliance proced...
Post a Comment
Read more

Indian Economy ...Slow.......Slowness... &........Slowdown

A common discussion now days in all the forums, be it social gathering, political or TV debate, is the slowdown of the Indian Economy. Although all such discussions have their own opinions but the projection being done is appears very high. No doubt, Indian economy is passing through a difficult stage which needs very careful assessment and quick remedial measures by the Government. The seriousness of the matter can be understood from the fact that in Q 2 this year (TY) GDP grew by 4.5% which is the slowest during the last 6 years. In Q1 the growth was 5% which too was a warning signal. The growth last year (LY) was 5% and 7% in Q1 and Q2 respectively.    During first half of the current fiscal the growth is 4.8% as compared to 7.5% last year. There is decline in growth of 6 out of 8 core sectors which is a major area of concern. The other data released by NSO also support the gradual slowness of the economy. ·         The gross value ad...
Post a Comment
Read more

India now has “International Financial Services Centres Authority"

In a path breaking reform, both houses of parliament have passed the International Financial Services Centres Authority Bill, 2019. The Bill provides to set up world class unified regulator for international financial services combining powers and functions of RBI, SEBI, IRDAI and PFRDA.  Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators such as RBI, SEBI and IRDAI. The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination. It also requires regular clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs. The development of financial services and products in IFSCs would require focused and dedicated regulatory interventions. Hence, a need was felt for having a unified financial regulator for IFSCs in India to provide world class regulatory environment to financial market participants. The establishment of a unified financ...
Post a Comment
Read more