Despite RBI rate cut, market looks for more growth impetus

Despite RBI rate cut, market looks for more growth impetus

Hence, expectations are high that banks will pass on the rate cut by lowering their lending rates and in turn possibly lowering the equated monthly instalments (EMI) that individuals pay on home and consumer loans. The weighted average marginal cost lending rate of banks has, however, risen from 10.38 per cent in January to 10.42 per cent in April 2019.

The six-member monetary policy committee (MPC) cut the repo rate to 5.75% as predicted by 44 of 66 analysts polled by Reuters last week.

"A 25 bps repo rate cut along with the change in policy stance to accommodative may mean that over a period of two months we might get a total of 50 bps cut including the current one", said B Prasanna, group head for global markets at ICICI Bank.

After the previous monetary policy meet in April, Das had told reporters that the central bank will take necessary steps including the issuance of a revised circular "as may be necessary for the effective resolution of stressed assets". Consequently, the reverse repo rate under the LAF stands adjusted to 5.50 percent, and the CRR rates remain at 4 percent, RBI said. On February 7, the RBI reduced Repo rate by 25 basis points, and reduced it to 6.25 percent from 6.5 percent.

Unlike in the past, when banking system liquidity was in deficit hampering the rate transmission, liquidity is in surplus for the week ended May 31, raising hopes of banks easing interest rates much faster than in the recent past. Before that, in February, the MPC had voted to lower the repo rate by 25 bps to 6.25 per cent.

The bank also has made a decision to quash charges levied on RTGS and NEFT transactions, banks will be required to pass this benefit to their customers.

A security guard's reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai, India, June 6, 2019.

The RBI lowered its growth forecast for the 2019/20 April-March fiscal year to 7%, having previously forecast 7.2% growth.

Weak global demand due to escalation in trade wars may further impact India's exports and investment activity, it added.

"The MPC (monetary policy committee) notes that growth impulses have weakened significantly A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern", read the policy resolution.

Tariff wars between the U.S. and China has impacted global trade and and financial markets.

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