Repo rate likely to hit a decade-low

Repo rate likely to hit a decade-low

RBI will begin its bi-monthly meeting on Tuesday.

Reserve Bank of India (RBI) Governor Shaktikanta Das. PTI Photo

Impacted by five-consecutive quarters of drop in the GDP growth rate, the Reserve Bank of India (RBI) is likely to announce yet another cut in the repo rate. While the apex bank announced an unconventional 35 basis points cut in the repo rate during the last policy meeting, markets expect a much higher cut in the rate this time.

The central bank’s six-member monetary policy committee is set to begin its bi-monthly consultation on Tuesday, the first meeting after the Finance Minister Nirmala Sitharaman announced sops to boost growth.

However, the markets don’t seem to have contended still. At least five different market analysts that DH spoke to expect the RBI to cut the key policy rate by 40 basis points, which according to them will help the government in tackling the economic slowdown.

In case RBI, which has already slashed the policy rate by 110 basis points this year, decides to go ahead with the rate cut of 40 bps, the repo rate would come down to 5%, the lowest level in a decade. In April 2009 the repo rate stood at 4.75% amid global meltdown.

The sources in the know say that the central bank governor Shaktikanta Das, who in each of the MPC meets he has chaired till now has doled out a cut in the repo rate, is in favour of another rate cut this time. “The governor seems to be tilting in favour of the rate cut,” sources in RBI said.

The central bank is also likely to revise its growth estimates for the current financial year, as hinted by Governor Das. This would also be the third time in the current financial year that the central bank would be lowering its growth estimates. In April, RBI had lowered the growth estimates for FY 2020 to 7.2% from 7.4%. In August it lowered the growth estimates by 30 bps to 6.9%.

But the central bank, despite benign inflation till now, will have to take into consideration the impact of the spike in the crude oil prices after attack on Suadi Aramco installations led to an outage of about 6% of the global oil production. Even as Aramco restored the production last week, the pump prices were still rising. The petrol prices have spiked across the country by 3.3% since the September 14 attack. All this might have an adverse impact on the inflation targets of the central bank. Many analysts are expecting RBI to announce something on the liquidity front as well. The RBI expert committee report, submitted last week, suggested longer-term repo operations for maintaining the liquidity levels in the financial system. The central bank, in all likelihood, is expected to announce its position about this report next week.

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