Mint Quick Edit | Suspense over RBI policy: Is a jumbo rate cut likely?
That the Reserve Bank of India (RBI) will move to make credit cheaper in support of the economy’s growth is widely expected. But could a jumbo repo rate cut of a half percentage point be in the offing?
With inflation under control, it seems likely that the Reserve Bank of India (RBI) will cut its policy repo rate on Friday. Many observers expect no less. Whether it’ll be a quarter of a percentage point cut or half has been under debate.
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To the comfort of monetary policymakers, inflation has been below RBI’s 4%-target for some months now and could drop below 3% in May. Besides, crude oil prices have been stable, diminishing the risk of an inflated import bill. Meanwhile, India’s economy grew a robust 7.4% in the three months through March, although America’s disruptive trade policy could get in the way of this momentum.
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Having shifted to an accommodative policy stance, RBI has indicated an intention to soften rates of interest. It has already reduced the repo rate twice by a quarter-point each. Another reduction of that quantum looks imminent, although SBI Research and others expect a half-point cut.
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This sort of front-loaded monetary easing would send banks an unambiguous signal to slash their lending rates. RBI has been known for cautious moves. But governor Sanjay Malhotra hasn’t yet revealed the approach he favours. The suspense will end soon.
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