(LiveMint)
The Reserve Bank of India’s monetary policy committee led by governor Shaktikanta Das will announce its policy decision on Thursday amid slowing economic growth and global uncertainty. The market is expecting a 25-basis point cut in key policy rates, along with a change in policy stance to accommodative from neutral.
Given the ongoing economic slowdown, with both the consumption and investment engines faltering, there are hopes that RBI will use monetary policy to stimulate the economy. The central bank’s actions will also set the stage for the Union budget that will be announced on 5 July. Das will also have to contend with a sticky transmission pipeline, with commercial banks having reduced lending rates by only 5-10 basis points (bps) over the past four months against the central bank’s 50-basis point reduction during the same period.
The market has varying demands on RBI. With inflation easing, India’s real interest rates are perhaps among the highest in emerging economies and provide headroom for readjustment. There are also expectations that the central bank might think beyond a 25 bps cut, even if the cut is not as deep as 50 bps. This school of thinking has been inspired by Das’s comments at the annual spring meeting of the World Bank and International Monetary Fund that central banks should not restrict policy rate actions to 25bps or its multiples.
