Didn’t RBI cut the repo rate due to these reasons? This is the opinion of experts on the decision

Repo Rate: The Reserve Bank of India has not made any change in the repo rate in its monetary policy. Along with this, the top bank has also cut the GDP estimate. Know what could be the reason for this decision.

HEADLINES

  • The Reserve Bank has not made any change in the repo rate in the monetary policy.
  • The RBI has kept the repo rate at 5.15 per cent and the reverse repo rate at 4.9 per cent.
  • The apex bank has also slashed GDP growth estimates.

New Delhi: The  Reserve Bank has announced the last policy of the year (2019). In this policy, RBI has not made any change in the repo rate. Along with this, the RBI has also lowered the GDP growth estimate. The RBI has kept the repo rate stable, followed by the repo rate at 5.15 per cent. The reverse repo rate is 4.9 percent. Members of the Monetary Policy Committee have voted 6–0 in favor of this decision.

Dr Joseph Thomas, Head of Research, MK Wealth Management, said, “There are three reasons why the RBI did not need to cut rates. The first retail inflation, which is higher than the RBI’s target of 4 per cent, is 4.62 per cent, but the main reason for its increase is the rise in prices of vegetables and fruits. This is a seasonal factor, which could end in the next two to three months.

He said, ‘The second reason is the weakness in the rupee. Weak rupee means low interest rate. Since the depreciation of the rupee can continue even from here, a cut in the repo rate is not the right decision. Third, liquidity in the interbank market and system is sufficient. In this situation, the auction process will be completed smoothly. The current state of liquidity is ensuring that the rate remains low in the last round. The same would have been achieved through reduction in rape rate. So, there is no need to cut at the moment.

Chief Economist, Motilal Oswal Financial Services, Nikhil Gupta said, “Contrary to everyone’s estimates, the RBI has kept policy interest rates unchanged. The forecast for real GDP growth has been reduced from 6.6-7.2 per cent to 4.9-5.5 per cent in the distance half-year of FY 2020. At the same time, the growth forecast for the first half of FY 2021 has also been revised from 7.2 per cent to around 6 per cent. Inflation forecasts for November-March FY2020 declined from 3.5-3.7 per cent to 4.7-5.1 per cent, which is expected to be 3.8-4.0 per cent in the first half of FY 2021.

He told, ‘We were assuming from the beginning that the cut in today’s policy will be the last cut of this cycle. We should keep in mind that unless inflation returns to 4%, there will be no rate cut. This means that there is no possibility of any rate cut in the next one year.

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “The industry was hoping that the slowing of economic growth would announce cuts in the RBI policy decision as before. Therefore, RBI’s decision not to reduce the interest rate is surprising and it has disappointed the industry. The RBI has perhaps taken a cautious stand by Weight & Watch to look into the impact of previous rate cuts and also assess inflation estimates. The rate cut is expected in the next meeting due to soft economic growth.

At the same time, Chairman of Naredco Maharashtra, Rajan Bandelkar said that even in the past, the benefit of rate cut by RBI was not passed on to customers by most banks, which affected the growth of real estate sector. In the given situation, RBI should also consider adopting a holistic approach rather than just repo rate revision. Nahar Group vice-president Manju Yagnik said that the MPC has announced its decision to keep the repo rate at 5.15 per cent despite the hope of cutting the 25 basis points. Overall, this financial year has seen an adjustment of 100 basis points so far, and is a sign of the Center’s accountability to address overall concerns surrounding growth.

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