Reserve Bank of India of late, often castigated for risk averse slow paced fiscal decisions, today announced a lending rate cut that could very much signal its intention for speeding up growth.
Opining on the Reserve Bank of India move our Editor-in-Chief M.M.D.Khan said, “Should the economic resultant parameters like inflation, market response, growth, supply side issues, with a moderate demand etc., are in line with expectations of RBI, this announcement would be followed up with further rate cuts. Considering the current ‘Market Levels’ such a move might take Indian markets into newer heights”.
Reserve Bank of India has cut repo rate, the rate at which it lends to banks, by 25 basis points to 7.75 percent and the cash reserve ratio. the portion of deposits that banks have to compulsorily keep with the RBI by 25 basis points to 4 percent.
Indian stock and bond markets were sure of a 25 basis point-cut in repo rate, while expecting a 50 basis point-cut till about a week back. But the expectations were tempered by the RBI’s cautious outlook in its macroeconomic report released on Monday.
Reserve Bank of India unexpectedly also reduced the cash reserve ratio (CRR), the share of deposits that banks must keep with the central bank, by 25 bps to 4.00 percent, which will infuse an extra 180 billion rupees into the banking system.
Reserve Bank of India stressed that halting a slide in growth had become critical, but it went on to list constraints, notably worryingly high current account and fiscal deficits, and the risk that inflation could flare again.
To boost growth, the investment cycle has to be revived. There are not enough new projects coming up, as the RBI has cautioned. A number of factors such as bridging the infrastructure gaps, hastening approvals, removing procedural bottlenecks, and improving governance, are required to spur investment.