RBI monetary policy: Economic think tank suggests cut in bank interest rate

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Published: August 1, 2019 8:29 PM

Repo Rate: Leading economists have recommended a 50 basis point cut in the repo rate by the Reserve Bank.

RBI, Monetary Policy, Repo Rate, Interest RateThe RBI, headed by Governor Shaktikanta Das, has four deputy governors.

RBI Monetary Policy: A group of leading economists have recommended cutting the Reserve Bank’s benchmark interest rate by half a percent ahead of Reserve Bank’s monetary policy committee meeting. A shadow monetary policy committee meeting organised by Noida based economic policy think tank EGROW Foundation recommended a 50 basis point cut in the RBI’s benchmark inter-bank lending rate to boost GDP growth.

Reserve Bank of India’s monetary policy committee meeting will begin on August 5 that will decide the benchmark short-term inter-bank lending rate, also known as repo rate.

This rate, known as repo rate, has direct impact on the interest of new loans like home loan and auto loan. A reduction in repo rate is directly linked to increase in the consumption as it will cut down the cost of borrowing for consumers.

“I think people are pressing for a bold move both on the repo and liquidity. On the Repo rate we have a range of opinion from 25 to 75 basis point cut, roughly I think the consensus is that 50 basis point reduction in repo rate is called for,” said Arvind Virmani, chairman of EGROW Foundation and former chief economic advisor to the Union government.

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The expert body, which invited top economists of the country such as Surjit Bhalla, Indranil Sen Gupta, chief economist of Bank of America Merrill Lynch and Upasana Bhardwaj, senior economist of Kotak Mahindra Bank, also recommended to the RBI to maintain its accommodative stance.

“If they do less than 50 basis point cut in the Repo rate then the stance will be accommodative. Our members are pretty clear that it will be either a 50 basis point cut or 25 basis point cut and the stance will be accommodative,”

Arvind Virmani told Financial Express Online after the shadow monetary policy committee’s meeting.

GDP growth has come down to 5.8% in the fourth quarter of the last fiscal, the lowest in five years which forced the policy makers to take urgent steps to improve the money supply in the market to boost consumption.

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Reserve Bank has reduced the benchmark interest rate by 75 basis points since February this year to support the economic growth. In its June monetary policy committee meeting, the RBI also changed its stance from neutral to accommodative as a signal to the banks to further cut the interest rates on retail and industrial loans.

Kick-starting the economic growth is considered the biggest challenge for Prime Minister Narendra Modi in his second term. And a reduction in benchmark interest rate by the Reserve Bank is crucial for the government’s efforts to revive the economy.

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