The Reserve Bank of India (RBI) is likely to announce a cut in repo rate later this week, according to a poll of economists.
Of the 11 economists polled by DH, eight are of the opinion that the central bank's monetary policy committee (MPC) will opt for 25 basis points cut in the repo rate.
Among these eight economists, three believe that the central bank may go for a rate cut in excess of 25 basis points. The assertion is backed by the fact that the country has seen dismal GDP growth of 5.8% in the bygone quarter, on the back of the subdued consumption. The central bank may opt for a further rate cut, in a bid to push the demand.
"The slowdown in economic activity is becoming more apparent with both demand and investment moderating faster than expected. The rising trade tensions, with US revoking the GSP benefit to India and imposing tariffs over Chinese exports, along with weak global industrial activity will add to the pace of slowdown that the domestic economy is currently witnessing," says Arun Singh, Chief Economist, Dun & Bradstreet India.
Even a higher cut is not expected to improve situation according to some economists. "RBI, for the first time, could use the rate change in non-multiples of 25 bps as a first step towards providing second generation signals to market of the future policy stance. However, even such larger rate cuts will not helpfully, but its transmission will. To this end, the RBI should now ensure following things," said State Bank of India's Chief Economic Advisor, Soumya Kanti Ghosh.
In fact, there has been an increased clamour for the rate cut by the Reserve Bank, the hopes of which propelled Sensex and Nifty to close at their respective record highs on Monday. The central bank commenced its three-day long MPC meeting on Monday and will announce its decision on Thursday morning. This is the second biennial MPC meet by the RBI, and first after Nirmala Sitharaman took over as the finance minister of the country.
However, three economists, including Prachi Mishra of Goldman Sachs and Nikhil Gupta of Motilal Oswal, suggest that the central bank may hold on to the rates.
"Our thinking is driven by various factors: uncertainty about oil prices; weak El Nino conditions, and its implications for the south-west monsoon; with some evidence on firming up of wholesale and retail prices of food; the incomplete transmission of the 50 bps reduction in the policy rate since February," according to Prachi.
There has been a clamour over the cut in the Cash Reserve Ratio (CRR) as well in a bid to address liquidity concerns, however, the economists are divided over the fact that whether RBI should go for it or not. A 100 basis point cut in CRR is expected to ease liquidity worth Rs 1.28 lakh crore in the markets.
The central bank is also expected to revise the growth estimates for FY20, amid concerns of a slowdown.