Will RBI cut rates in June monetary policy? This economist tells why it’s not right question to ask

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Updated: June 4, 2019 3:51:52 PM

As the economy sees a slowdown, a rate cut is most expected from the Reserve Bank of India (RBI) in such a scenario, said a veteran economist.

RBI statements have averaged 3,084 words in the post-inflation targeting regime (Reuters File photo)The second bi-monthly policy is slated to be announced on June 6 by the Reserve Bank of India’s Monetary Policy Committee (MPC).

As the economy sees a slowdown, a rate cut is most expected from the Reserve Bank of India (RBI) in such a scenario, said a veteran economist. However, the real debate shouldn’t be over rate cut in June monetary policy, but over the number of rate cuts the economy may see this year, Jahangir Aziz, head of emerging market economics, JP Morgan told ET Now in an interview. Even as the rate cut was always on the cards, the question arises is that if are at the start of an easing cycle or maybe there will be just one more rate cut, he added. “The debate should be how much more, rather than whether or not we will have a rate cut this week,” he noted.

The second bi-monthly policy is slated to be announced on June 6 by the Reserve Bank of India’s Monetary Policy Committee (MPC). In its last two reviews, the committee has already cut the short-term lending rate or repo rate by 25 basis points each. Since February, even as the RBI has slashed rates by 50 bps, the MCLR rates have only dropped marginally by 5 bps, bringing forth the issue of transmission of rates in the system.

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In a report released last week ahead of the announcement of the fourth quarter GDP results for FY19, Goldman Sachs said that the central bank may not cut rates owing to concerns over monsoon, oil prices, firming wholesale and retail prices, incomplete transmission by the banks, among others.

Shanti Ekambaram, president, consumer banking, Kotak Mahindra Bank, said that the likelihood of the interest rate cut stands in the range of 25 bps to 50 bps, The RBI move to cut rates would be based on how fiscal situation evolves with the Budget and other spending measures, the banker also said.

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