Repo rate: RBI may undertake fourth straight cut

The MPC is expected to give a fourth straight cut of at least 25 basis points and bring it down to 5.50% to support a slowing economy amid muted private investment.  (Reuters File Photo)

The Reserve Bank of India's Monetary Policy Committee will deliver its judgement on Wednesday after a two-day meeting, the first without a single hawkish member from the central bank side after deputy governor Viral Acharya resigned last month.

Acharya was the second person after RBI Governor Urjit Patel, who quit mid-way through his tenure last year. In their absence, the MPC is more or less a congregation of like-minded 'dovish' representatives, including RBI Governor Shaktikanta Das, who has handed out three back-to-back cuts in the key policy rates since January this year.

The MPC is expected to give a fourth straight cut of at least 25 basis points and bring repo rate down to 5.50% to support a slowing economy amid muted private investment. The MPC's decisions will be announced at 11.45 am. A 25 bps cut will take the benchmark rate to its lowest since April 2010.

It comes in the backdrop of 3.18% consumer price inflation, which is much below the RBI's medium-term target of 4% and gives the central bank room for a cut in policy repo rate to help banks lend at cheaper rates to consumers and investors, thus giving a leg-up to investment and demand both.

The decision also comes in the backdrop of a slowing economy and a tight fiscal stance by Finance Minister Nirmala Sitharaman, meaning thereby that the RBI is required to do the heavy-lifting to pump prime the economy. India's economic growth is expected to reduce further to 5.7% in the April-June quarter from a five-year low of 5.8% in January-March. The subdued growth outlook goes in favour of a cut.

A sluggish core sector growth of 0.2% in June gives the MPC another reason for a cut. Core sector comprises eight key infrastructure industries including power, steel, cement, petroleum products and crude oil. They are the best indicators of overall industrial production in the country.

What does not give much room for the RBI's MPC to cut rates is an unsatisfactory distribution of monsoon, which has delayed Kharif sowing and may have an impact on food prices and fan food inflation.

So far in 2019, the repo rate has been cut thrice by 25 bps each, from 6.50% to 6.25% in February; 6.25% to 6% in April and from 6% to 5.75% in June.

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