What economy may gain from RBI’s sixth repo rate cut; 10 major industries’ loan growth reveals this

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Updated: Feb 03, 2020 5:26 PM

Credit growth in the textiles industry fell from 6.9% in March 2018 to 1.3% in September 2018, -3.0% in March 2019 and -5.7% in September 2019.

textile industry, credit growth, economic slowdown, RBI, reserve bank of india, MPC meet, repo rate, interest rate, rate cut Despite a frequent cut in the repo rate, credit growth in 10 major industries further slowed in September 2019, compared to March 2019.

After Union Budget 2020 and ahead of RBI’s MPC meet starting tomorrow, speculations are being drawn if the interest rate will be cut for the sixth time in one year. However, the effect of previous cuts is yet to be seen on the ground. Despite a frequent cut in the repo rate, credit growth in 10 major industries further slowed in September 2019, compared to March 2019, according to the Economic Survey 2020. These industries include textiles, infrastructure, petroleum, etc. Apart from them, there are also a few industries where the contraction continues, though narrow.  

It was earlier believed that India could be a potential gainer amid the gap generated by the US-China trade war. The textile industry was especially one of the areas which were expected to rise significantly due to a window created by low-demand in the Chinese market. On the contrary, the credit growth in the textiles industry fell from 6.9 per cent in March 2018 to 1.3 per cent in September 2018, -3.0 per cent in March 2019 and  -5.7 per cent in September 2019. 

Also Read: Budget done and dusted, now RBI’s turn to take over; will it cut rates in next monetary policy?

While the market was expecting a sixth straight cut in the Monetary Policy Committee of December 2019, the RBI did not go for it saying there is merit in a wait-and-watch approach to see how the government’s fiscal measures pan out and impact real economic activity, including investment. Now, when the rate cut benefit is still invisible on the ground, the Reserve Bank of India may have many factors to consider in the upcoming MPC meeting.

 

Meanwhile, the RBI’s first monetary policy announcement in 2020 is slated on 6 February 2020. With rising inflation and lingering growth concerns, the RBI is expected to keep the status quo maintained as in December, however, the market would be keenly watching the RBI’s commentary on growth slowdown and inflation

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