Published: Thu, August 08, 2019
Markets | By Erika Turner

RBI moves unlikely to ease pain for India's struggling shadow banks

RBI moves unlikely to ease pain for India's struggling shadow banks

A dismal 29 for 100 Even before the central bank cut its repo rate by 35 basis points today, it had eased its own lending rate by around a 100 basis points or 1%, since this February.

Mumbai: Reserve Bank governor Shaktikanta Das Wednesday said the economy is in the midst of a cyclical slowdown and not a structural one, and exuded confidence of growth reviving soon on the back of cheaper money and likely more government measures.

According to its third bi-monthly monetary policy statement, the RBI also revised the reverse repo rate to 5.15 per cent.

The brokerage firm further said that the current macroeconomic environment warranted a 50 bps rate by the RBI.

With a 35 basis points cut in interest rates, it is highly likely that banks would reduce interest rates on home loans, vehicle loans, auto loans etc.

Four members voted for a 35-bps rate cut, 2 voted for a 25 bps cut.

With the fourth cut in a row, the repo rate stands lowest level in the past nine years; RBI trims GDP growth forecast for current fiscal to 6.9 per cent from 7 per cent predicted previously.

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The bank said addressing growth concerns by boosting aggregate demand, especially private investment, should be the highest priority "at this juncture while remaining consistent with the inflation mandate".

Benchmark interest rate was cut by 0.35 per cent to 5.40 per cent from 5.75 per cent amid low inflation, faltering economic growth and uncertain global scenario.

In the June resolution, MPC had projected the real GDP growth for 2019-20 at 7 per cent - in the range of 6.4-6.7 per cent for H1:2019-20 and 7.2-7.5 per cent for H2 - with risks evenly balanced.

The MPC has maintained an "accommodative" stance for the monetary policy, implying that an increase in interest rates is off the table. The Consumer Price Index retail inflation was projected at 3.1% for the second quarter of the financial year while CPI-based inflation in the first half of the next financial year was projected at 3.6%.

The RBI will ensure that there is sufficient liquidity available for the economy.

The "Statement on Developmental and Regulatory Policies" of the RBI published on Tuesday after the monetary policy meet also noted that during the last one year, the Reserve Bank has taken several measures to facilitate credit flow through a series of open market operations and foreign exchange swaps among other steps. "Even as past rate cuts are being gradually transmitted to the real economy, the benign inflation outlook provides headroom for policy action to close the negative output gap".

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