RBI likely to cut rates for sixth time this year, try help growth

RBI has delivered 135 basis points of interest-rate easing this year, but lenders have only transmitted a fraction of that to borrowers.

The Reserve Bank of India is set to deliver its sixth straight interest-rate cut Thursday, shrugging off a spike in inflation as it stays doggedly focused on supporting economic growth.

While all 34 economists surveyed by Bloomberg News as of Wednesday expect a reduction, the majority expect a quarter-point cut, with the rest expecting reductions of 15 basis points to 50 basis points. The RBI has cut borrowing costs by 135 basis points so far in 2019 to a nine-year low of 5.15%.

The meeting of the six-member Monetary Policy Committee led by Governor Shaktikanta Das, who completes one year in office next week, comes amid deepening concerns about growth, financial stability and weak public finances.

The policy decision will be announced at 11:45 a.m. in Mumbai, followed by a press conference 15 minutes later by Das. Here’s a look at what else to watch out for:

Growth trajectory

The RBI has lowered its growth forecast for the current fiscal year four times already, with the latest revision in October pegging expansion at 6.1%. Data since then has shown gross domestic product expansion slowing to 4.5% in the July to September period, the weakest pace in more than six years.

“With no imminent signs of a turnaround, we expect the RBI to cut rates by 25 basis points at its December meeting,” said Teresa John, an economist at Nirmal Bang Equities Pvt. in Mumbai. The July-September period saw economic slack deepen, with manufacturing contracting. A purchasing managers survey indicated that activity in the dominant services industry slowed during that period. With surveys for both manufacturing and services in November pointing to a rebound, it’s worth watching if and by how much the RBI will further lower its growth forecast.

Business Standard