RBI’s June monetary policy meet begins today; these factors may shape rate cut decision

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Updated: June 3, 2019 12:43:07 PM

The second bi-monthly monetary policy committee (MPC) meeting of the RBI began Monday amid expectations that another rate cut may be in the offing, even as banks didn’t fully pass the benefits of the previous cut to the customers.

Even as the central bank cut rates by 50 bps since February, the rates have only dipped marginally by 5 bps.

The second bi-monthly monetary policy committee (MPC) meeting of the RBI began Monday amid expectations that another rate cut may be in the offing, even as banks didn’t fully pass the benefits of the previous cut to the customers. The meet holds significance as it comes at a time of muted GDP growth and slowdown in the economy. Even as the central bank cut rates by 50 bps since February, the MCLR rates have only dipped marginally by 5 bps. The RBI may not slash rates on account of concerns around monsoon, oil prices, firming wholesale and retail prices, incomplete transmission by the banks among others, said Goldman Sachs in a report released last week agead of announcement of the Q4FY19 GDP data.

The central bank may in fact evaluate the implications of the new government policies for growth and inflation, the global brokerage added. However, with bond yields on benchmark government bonds declining to 18-month low of 7.03 per cent on Friday, a section is betting on the cut once again. The 10-year government bond yields were standing at 6.97 per cent at the time of reporting.

In the forthcoming policy, the RBI may come up with a rate cut of 35-50 bps, Soumya Kanti Ghosh, group chief economic advisor, State Bank of India, told The Indian Express. However, the RBI should now look at the transmission side as such large rate cuts won’t otherwise help fully, he added. There are others who expect the central bank to announce both new liquidity measures and a rate cut.

Also read: India’s manufacturing sector growth gains momentum in May: PMI

The rate cut expectations are in the range of 25 bps to 50 bps, Shanti Ekambaram, president, consumer banking, Kotak Mahindra Bank, said. The RBI decision would be based on how fiscal situation evolves with the Budget and other spending measures, the banker noted, adding the RBI may also consider issues such as global trade tensions, geopolitical equations and the monsoon outlook.

India has recorded a 20-quarter low Q4FY19 GDP growth rate of 5.8 per cent and a 5-year low full FY19 growth of 6.8 per cent, the government data showed. The Reserve Bank of India’s Monetary Policy Committee (MPC) will announce its bi-monthly policy on Thursday. It has already cut the short-term lending rate or repo rate by 25 basis points each in its last two reviews.

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