oppn parties RBI Rate Cut: Lending By Banks Must Take Off To Revive The Economy

News Snippets

  • For the first time in history, Darjeeling loses first flush tea due to suspension of garden work for Covid-19 outbreak
  • Supreme Court asks journalists to be responsible and publish only the official version of news after it was brought to its notice that migrant exodus started after the 'fake' news that the lockdown will be extended to three months
  • Small saving rates slashed by the government by 140 basis points
  • The Centre says that the exodus of the migrants was stopped to save villages and prevent community transmission
  • The Centre says March 31 will remain the closing date for FY 2019-2020 and no change will be made for Covid-19 disruption
  • Tablighi Jamaat fiasco puts several states on high alert, attendees and their contacts being traced
  • Stock markets recover on the last day of the financial year, but the sentiment remains weak
  • The government says Covid-19 is still in local transmission stage in India
  • Government scotches rumours of extending the lockdown beyond April14. Says no such plan
  • Centre asks states to give shelter and food to migrant workers to stop them from taking to the streets
  • RBI cuts repo rate by 75 bps, the steepest in 10 years
  • Centre writes to states regarding laxity in monitoring people who had arrived from abroad between January and March
  • Kerala reports a spurt in new cases
  • With 124 fresh cases on Friday, the number of reported cases in India stand at 854
  • Five of a family, including a 9-month-old-baby test positive for Covid-19 in Nadia district in West Bengal on Friday
Total count stands ar 3082 as India records 16 Covid-19 deaths, the highest in a single day
oppn parties
RBI Rate Cut: Lending By Banks Must Take Off To Revive The Economy

By Linus Garg
First publised on 2019-04-05 23:15:48

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
The financial markets had expected the RBI’s monetary policy committee (MPC) to cut repo rates. While the majority expected it to be 25 basis points, some even expected the MPC to go deeper and announce 50 basis points cut as inflation was way below RBI’s target of 4%. When the MPC chose to cut interest rates by only 25 basis points, it showed that it had taken a much broader view of the realities than just be bound by lower inflation and slowing growth.

There are two things on the horizon that can easily cause a spike in inflation. The first is the forecast that monsoons in India this year could well be below normal due to El Nino. Lower crop production could inflate the price of the food basket and cause the overall inflation to jump by leaps and bounds in no time. Then, oil prices, despite the global economic slowdown, show no signs of going down. As the Opec cartel has cut down production, oil prices are hovering a $70 per barrel. The good news is that the economic slowdown means that there is little chance of oil prices jumping sharply but the chance of them going down is also remote.

Hence, the RBI has rightly given a small nudge to the economy rather than go the whole hog. It has decided to wait until the next meeting in June to take further action. With two successive rate cuts and a huge amount of liquidity injected in the system, lending has now to take off if the slowing economy is to be revived. For that to happen, banks have to pass the rate cut to borrowers. Last time, that did not happen. But now the RBI and the government have to nudge the banks seriously to start lending to good borrowers at rates that match the rate cuts by the RBI. More than that, the government will have to revive the economy by investing in infrastructure. But all that can only happen when a new government is in place in June. Hence, the next MPC meeting will be of great significance.