RBI may go for another policy rate cut of 25 bps on Oct 4

The Reserve Bank of India might go for another rate cut on Friday, October 4. This cut of up to 25 bps will be the fifth in a row by the apex bank. The RBI Governor Shaktikanta Das-headed Monetary Policy Committee (MPC) will announce the fourth bi-monthly monetary policy for 2019-20 on Friday after its three-day meeting.

The apex bank is likely to announce the rate cut to complement government's measures like reducing corporate tax and promoting credit offtake to boost economic activity during the festive season amid a slowdown.

Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE, said that a rate cut of 25 bps is likely to complement the government's fiscal stimulus. He added that while the government has taken a series of measures in the last few weeks to drive structural changes in the Indian economy, most of these are enabling provisions to ease supply side pressures. The key challenge of reigniting demand remains, he told news agency PTI. "Thus, we are hoping that the central bank to cut the key signalling rate of repo by 25 bps to 5.15 per cent next week to complement the government's fiscal stimulus," he said.

Suyash Choudhary, Head (Fixed Income), IDFC AMC was of the opinion that the global and local context is weak enough to argue yet for some (though not substantial) incremental role for monetary easing. "We were expecting before and would expect the repo rate to bottom out in the 5 to 5.25 per cent area," Choudhary told the news agency.

Experts are hoping low inflation provides enough headroom for the RBI to further lower the policy rate, especially when festive season has just started. This is the time when people make huge purchases due to Navratra and Diwali festivals.

The central bank has already slashed the repo rate (short-term borrowing rate) four times aggregating to 1.10 percentage points since January. At its previous meeting in August, the MPC had reduced the benchmark lending rate by an unusual 35 basis points to 5.40 per cent.

The upcoming MPC meeting comes in the backdrop of the RBI's mandate to banks to link their loan products to an external benchmark, like repo rate, for faster transmission of reduction in policy rates to borrowers from October 1. Ahead of the meeting, the Shaktikanta Das-headed Financial Stability and Development Council (FSDC) sub-committee took stock of the prevailing macroeconomic situation. Earlier, the RBI Governor had said the government has little fiscal space, giving hopes that the RBI may provide more monetary stimulus to prop up the economy.

(With PTI inputs)

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