Will RBI cut interest rate for sixth time in a row? Here’s what economists say

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Published: December 4, 2019 5:43:29 PM

The RBI began the three-day monetary policy meeting amid high expectations of a sixth yearly cut in the short-term lending rate in December 2019.

RBI may cut rates again to support growthThe meeting comes at a time when the economy is undergoing slowdown on account of both domestic and global concerns.

The RBI began the three-day monetary policy meeting amid high expectations of a sixth yearly cut in the short-term lending rate in December 2019. The meeting comes at a time when the economy is undergoing slowdown on account of both domestic and global concerns. A Reuters poll of 70 economists predicted the RBI would cut its repo rate by 25 bps to 4.90 percent. The annual retail inflation rose to 4.62 percent last month, climbing above 4 percent for the first time in 15 months. The GDP growth slowed to 4.5 per cent in Q2FY20, a 26-month low. In its October policy review, the RBI sharply cut its growth projection for FY20 by 80 bps to 6.1 percent, but most economists expect another downward revision this time, especially when both domestic and global economic concerns are rising. Here is what economists expect the RBI to do in December bi-monthly monetary policy:

ICRA

“Based on the guidance provided by the MPC regarding the accommodative stance, we anticipate that the Committee would reduce the repo rate by 25 bps in December 2019 policy review to support economic growth, looking through the vegetable price-led uptick in the CPI inflation in October 2019. However, this decision may not be unanimous”, Aditi Nayar, Principal Economist, ICRA said.

Kotak Mahindra AMC

“The MPC Meeting this time is set against an interesting backdrop – rising CPI data and a falling GDP growth. Super impose easing interest rates across the globe, further aggravates the situation. However, the high real rates in India suggest a case for further easing given that CPI rise is largely food prices driven. This Tug of war, in our view, may pave way for an additional rate cut in the upcoming policy,” said Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company.

CARE Rating

“We believe that there should ideally not be a rate cut in the December policy. However, given the higher weightage given to growth by the MPC members, we would see a rate cut of 25 bps in this policy. The RBI will maintain its accommodative stance keeping the persistent economic slowdown in the background,” Madan Sabnavism Chief Economist, CARE Ratings said.

Kotak Mahindra Bank

“Even as the October retail inflation at 4.62% breached the RBI’s medium-term target of 4%, I believe that the Q2FY20 GDP growth at a six-year low at 4.5% and the Sept IIP hitting an almost eight-year low with growth at (-) 4.3%, will nudge the RBI to cut the key policy rate by up to 25 basis points. The GDP numbers did throw up some positives in terms of a pick-up in government spending and private consumption. Against this backdrop, I do expect that the Government will step up spending in key areas such as infrastructure to give a boost to the economy. This is likely to pose a challenge to the budgeted fiscal deficit number of 3.3%. However, the need of the hour is for fiscal and monetary policies to work in tandem with each other to boost economic growth and consumption,” Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank said.

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MSE

“In case the MPC chooses the deep easing route, i.e., sets out both to manage inflation and boost growth as joint priorities, then 75 basis points is the minimum cut required. After the first 25, which is already priced in from the declared stance, the next 25 is for inflation management and at least 25 have to go towards growth. 50 towards growth would be even better, meaning a solid 100 point cut should be on the cards this one time. It may be dramatic but it will save the RBI from expending a lot of policy ammunition going forward,” Ranjan Chakravarty, Economist and Product Strategist, MSE said.

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