Reserve Bank may cut interest rate by at least 25 bps on Thursday to prop up economic growth: Experts

New Delhi: The Reserve Bank may go for another round of rate cut, third in a row, on Thursday to prop up the economic growth which dropped to a five-year low in the final quarter of 2018-19, opined experts.

The RBI's Monetary Policy Committee (MPC) is slated to announce its bi-monthly policy on Thursday amidst Narendra Modi-led government starting its second term. The central bank had cut the short-term lending rate (repo rate) by 25 basis points each in its last two policy reviews.

The MPC headed by RBI Governor Shaktikanta Das will meet for three days beginning June 3 to firm up the second bi-monthly monetary policy of the fiscal.

India's largest bank SBI in a recent research report had said that the RBI needs to go in for a larger rate cut, more than 25 basis points, in the next monetary policy review in June to reverse the current slowdown in the economy.

On expectations from the MPC, CII Director General Chandrajit Banerjee said the RBI needs to continue lowering interest rates in order to provide a stimulus to the economy.

 Reserve Bank may cut interest rate by at least 25 bps on Thursday to prop up economic growth: Experts

Representational image. Reuters.

"This is needed to address the slowdown in production and sales across consumer goods categories including segments such as passenger cars, two-wheelers as well as non-durables," he said, adding that with inflation still far below the RBI's target of 4 percent, there is an ample room for a reduction in the policy rate.

Shanti Ekambaram, President, Consumer Banking, Kotak Mahindra Bank opined that macro environment was conducive for the RBI to cut rates.

"One can expect both liquidity measures and a rate cut. Rate cut expectation ranges from 25 bps to 50 bps," she said.

Without making any judgement on a rate cut by the RBI, Finance Secretary Subhash Chandra Garg said there has been a reduction in the policy rate in the last two policies announced since February.

It is for the Monetary Policy Committee to take a view on policy rate taking into consideration low inflation and moderation in economic growth.

Inflation continues to be much lower than the target, he said, adding core inflation also now on a decline.

On the other hand, Karthik Srinivasan, Head, Financial Sector Ratings, ICRA expects the MPC to maintain a status quo in the upcoming meeting.

"We expect MPC to adopt a wait and watch approach and look for the fiscal policy announcements during the union budget in July 2019," Srinivasan said.

India's GDP growth slowed to a five-year low of 5.8 percent in the fourth quarter of 2018-19 mainly due to the poor performance of agriculture and manufacturing sectors.

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Updated Date: Jun 03, 2019 12:00:45 IST