India's central bank cuts rates again

India's central bank cuts rates again

India's central bank cuts rates again

RBI could also revise GDP growth projections to the lower end, for the fiscal.

The reduction in key policy rate by the RBI is expected to revive investment and encourage consumption, thereby kick-starting the sluggish economy, India Inc said on Friday. The market is expecting the RBI to cut interest rates yet again, after last monetary policy's unexpected 35 basis point cut.

RBL Bank economist Rajni Thakur said the central bank is reaching its lower bound of policy space and has tried to steer support expectations away from monetary side, adding that it does not see more than 15-40 basis points additional cuts in this cycle.

It was widely speculated that the RBI might change its stance to "neutral" due to the fiscal pressure expected out of the Centre's recent growth inducing measures.

In a bid to revive business activity, the government in September announced a sharp cut in the corporate tax rate-to 22 percent from 30 percent.

Inflation in August accelerated to a 10-month high but remained well below the central bank's medium-term target of 4% for a 13th straight month.

"As soon as this issue came to the central bank's notice, the RBI has acted very swiftly".

Given that the 110 bps rate cut so far has not quite led to the uptick in investment, one can look upon the series of rate cuts as being work in progress to lower the cost of capital gradually over time so that when the investment cycle looks to pick up, potential investors would be comfortable with the rate regime.

"Repo rate has been cut by 25 basis points, from 5.40% to 5.15%. This should send a strong signal for bank lending rate cuts with the "busy" industrial season round the corner", BofA Merrill Lynch said in a report.

Retail inflation inched up to 3.21 percent in August but remained within the RBI's comfort zone.

The central bank has maintained its "accommodative" stance. The first is that by now it has become a habit where low growth tendencies, which have taken precedence over the original goal of inflation targeting gets thumbs-up for a rate cut.

He was responding to a slew of questions on how RBI was caught napping as the scam at the leading cooperative bank was going on for around eight years and its exposure to HDIL was over 73% of its total book and that too the account had been an NPA for long.

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