It was the Atal Bihari Vajpayee government when India witnessed highest repo rate cut of 300 basis point by the Reserve Bank of India, while the rate hike was 100 basis points a report has shown. And in the second term of Manmohan Singh-led UPA government, India saw the highest rate hike of 450 basis points and a rate cut of 125 basis point, a research report by State Bank of India showed. Notably, the second term of Manmohan Singh followed the global financial crisis of 2007-2008.
“If the electoral cycle is looked at, the maximum rate cut of 500 bps were observed in 1999-04, followed by 425 bps cut in 2004-09. However, during 2009-2014 the interest rates went up steeply (450 bps),” SBI said in a research report. It noted that unlike countries like the United States, rate hike or rate cut cycle in India is not entirely influenced by electoral cycles.
So far, in the Narendra Modi era, the RBI has cut repo rates by 200 basis points and hiked by just 25 basis points, which is indicative of the fact that the inflation has largely stayed within the target. A two-and-a-half-year-long slump in international crude oil prices is understood to have helped in this case to keep inflation lower. The RBI hiked interest rates by 25 basis points earlier this year for the first time in over four years, citing a major upside risk to the baseline inflation on the back of high crude oil price. Experts say more rate hikes can be expected this fiscal year.
Meanwhile, Rupee movement, the SBI said, two months post every election shows that the
exchange rate depreciated in all cases. However, the impact of elections on yield is not that straightforward.
“The yield increased in the two months post elections during the UPA Government period while it declined in the elections when NDA was elected,” the report said.