Skip to main content

RBI Likely to Go for Another 25bps Cut

The Reserve Bank of India (RBI) is likely to reduce the cost of money for the second time in as many months as mounting concerns over a global economic slowdown, particularly in the US, and its impact on the emerging markets make investors rather wary of fresh investments into capital assets. According to an ET survey of 26 market participants, an overwhelming majority expect a quarter percentage point reduction in the repo, or the rate at which banks borrow short-term money, when the central bank concludes its monetary policy review Thursday. The repo is now set at 6.25%.
“Global economic conditions point to a synchronised growth slowdown, dampening oil prices,” said Gaurav Kapur, chief economist at IndusInd Bank. “This in turn will strengthen RBI’s rate-cut call as inflation is unlikely to spring a negative surprise over the next couple of quarters. RBI will focus more on ensuring future liquidity support to make the transmission of rate cuts more effective.” Two participants, including Aditya Birla Mutual Fund, believe that RBI would not alter the rates. In its February bi-monthly policy, it reduced the repo by 25 basis points. A basis point is one hundredth of a percentage point.
Earlier in March, global rating company Fitch cut India’s FY19 GDP growth forecast to 7.2% from 7.8% in December. It also reduced the FY20 growth forecast to 6.8% from its erstwhile estimate of 7%, citing weaker-than-expected momentum in the economy. India’s GDP growth slowed to 6.6% in the December quarter.
“Economic activity is showing signs of strain, and (those signs are) visible in weaker consumption proxies and sectors previously served by non-bank credit,” said Radhika Rao, economist at DBS Bank, Singapore. “The Monetary Policy Committee is on course to cut policy rates for a second consecutive time in April, retaining the distinction of being the first regional central bank that has returned to a policy easing cycle this year.” During the last policy announcement in February, the central bank forecast GDP growth for 2019-20 at 7.4%, with risks evenly balanced. It revised downward the consumer inflation prediction to 2.8% in the fourth-quarter of FY19, from 2.7-3.2% forecast earlier. The projection for H1 in FY20 is at 3.2-3.4%, with risks broadly balanced around the central trajectory.
Separately, the first inversion of the US yield curve in 12 years has also stoked concerns of a slowdown – perhaps even an imminent recession in the world’s biggest economy. The US Federal Reserve has also hinted at easing its monetary policy. More than a fourth of the respondents expect the Monetary Policy Committee to leave its rate stance unchanged at “Neutral”, which offers policy experts the flexibility to either cut or raise rates in response to the most current set of statistics. But risks to inflation have still not faded fully due to fiscal expansion and the uncertainty over crop yields.
ICICI Bank expects FY20 GDP to expand at 7.2%, with a slight downward bias. Inflation could average 3.8% year-on-year. “The growth-inflation mix has opened up the space for policy accommodation, although further action beyond April would be data-dependent,” said B Prasanna, head-global markets group at ICICI Bank. Consumer prices rose 2.57% in February this year compared with 1.97% in January. But prices are well below the RBI’s medium-term target of 4%. “The stage is ripe for a bigger rate cut,” said Soumya Kanti Ghosh, group chief economic advisor, economic research department, State Bank of India. “If the rate cut is of 25 bps only, the RBI could then indicate more cuts through a possible shift in its stance/policy statement.”
The Economic Times, 1st April 2019

Comments

Popular posts from this blog

SC order on RBI circular: More options for banks to tackle defaulting firms

Lenders also have the option of restructuring the loans Lenders to companies which are under stress could now have three options to deal with them if they default on loans: take a haircut as part of a one-time settlement, restructure the loans for a longer tenure as they did when corporate debt restructuring schemes were allowed, or go to the Insolvency and Bankruptcy Code (IBC) for redress. These changes in the options available to lenders come, according to PE funds and bank lawyers who are involved in the IBC process, in the wake of the Supreme Court on Tuesday setting aside the 12 February RBI circular, which allowed a 180-day window to banks to resolve a company default.But they can still find a resolution. According to a Reserve Bank of India circular, a loan becomes a non-performing asset when banks cannot find a way of recovering their money in 90 days. In short, banks still have a window to resolve the default. Lenders can take a haircut as part of a one -time settlement of du…

April GST collections at new high despite rate rationalisation in December

Goods and services tax (GST) collection touched a record high in April, exceeding Rs 1 trillion for the third time in four months. The mop-up was 10 per cent higher over the previous year. Gross collection for the month was Rs 1.13 trillion, said the finance ministry. Despite the recent rate rationalisation in December, a rise in collection was reported. Of the total collected, the CGST (central GST) contributed Rs 21,163 crore, the SGST (state GST) Rs 28,801 crore, the IGST (integrated GST) Rs 54,733 crore (including Rs 23,289 crore on import) and cess Rs 9,168 crore (including Rs 1,053 crore on import). After settlement of the IGST and the balance IGST in a 50:50 ratio between the Centre and states on a provisional basis, the CGST stood at Rs 47,533 crore and SGST at Rs 50,776 crore. The CGST target in the Union Budget for 2019-20 is Rs 6.1 trillion. “The April collection indicates the tax base is increasing gradually, with GST getting stabilised with measures such as e-way bills and…

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…