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

News Snippets

  • Imran Khan raises nuclear war bogey again, says if Pakistan loses a conventional war, it might fight till the end with its nuclear arsenal
  • Searching for Rajeev Kumar, ex-CP, Kolkata Police, the CBI approaches state DGP to know about his whereabouts
  • Ferry overturns in the river Godavari in Andhra. 46 feared dead
  • Supreme Court to hear pleas on Jammu & Kashmir today
  • Ghulam Nabi Azad moves Supreme Court for ordering the government to allow him to visit his family in J&K
  • GST Council meeting to focus on leakages and evasions, expected to tighten processes, especially regarding input tax credit
  • Finance minister, citing figures for July 2019, says that industrial production and fixed investment is showing signs of revival
  • Amit Shah's comment on Hindi as the unifying language draws the ire of MK Stalin and Siddaramaiah. Stalin says the country is India not Hindia
  • On Hindi Diwas today, Amit Shah says use of mother language must be increased but Hindi should be adopted as the common language of the country
  • Pakistan raises white flag on LoC to claim bodies of dead soldiers
  • India beat Bangladesh by 5 runs to lift the U-19 Asia Cup
  • A three-judge bench of the Supreme Court will examine the amendments to the SC/ST act made after an apex court order that 'diluted' the provisions and which were reinstatd by the amendment
  • Delhi government decides to re-implement the odd-even system of traffic management from November 4 to 15
  • UP to discontinue law that allows the state government to pay the income tax dues of ministers
  • Anand Sharma of the Congress to replace P Chidambaram on the parliamentary committee on home affairs
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
oppn parties
RBI Rate Cut: Lending By Banks Must Take Off To Revive The Economy

By Linus Garg

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.