The RBI may refrain from cutting the benchmark lending rate on Thursday but may announce other measures like loan restructuring in an emergency to revive the coronavirus-hit economy, experts have said.
The six-member Monetary Policy Committee (MPC), headed by the RBI Governor, is expected to announce its decision on August 6. This is the 24th meeting of the MPC.
Although opinions are divided on the rate cut, experts believe loan restructuring is more essential at this stage to combat the impact of Covid-19.
“The focus is on restructuring. The Ministry of Finance is actively engaged with RBI on this. last week.
In addition, the central bank is expected to issue guidelines regarding the loan moratorium which expires on August 31 as bankers oppose further extension of the facility due to concerns over its misuse.
The rapidly changing macroeconomic environment and deteriorating growth outlook necessitated off-cycle MPC meetings, first in March and then again in May 2020.
The MPC cumulatively cut the repo rate by 115 basis points during these two meetings, resulting in a total reduction in the policy rate of 250 basis points since February 2019, with the aim of stimulating economic growth.
The central bank has taken proactive steps to limit the damage to the economy caused by the pandemic and subsequent lockdowns.
According to an SBI research report, banks cut rates on new loans by 72 basis points, the fastest transmission on record.
SBI cut the equivalent of its repo-linked retail loan portfolio by 115 basis points.
Shanti Ekambaram, chair of consumer banking group, Kotak Mahindra Bank, said the interest rate cuts had little impact on stimulating or growing demand.
The Covid-19 pandemic is hurting both businesses and consumers and uncertainty over when things will normalize has led to moderate demand and supply disruptions, she said.
“Having anticipated the rate cuts and with inflation still above 6%, the MPC may decide to wait and watch and take a break in August to monitor India’s progress in its fight against the virus so many times. from a health point of view than an economic one,” Ekambaram said.
The government has instructed RBI to maintain inflation at 4% (+, -2%). The central bank mainly takes the consumer price index (CPI) into account when formulating monetary policy.
Rising food prices, particularly meat, grains and pulses, pushed CPI-based retail inflation to 6.09% in June. The inflation rate for July will be announced on August 12.
Experts are of the view that the MPC would maintain a dovish stance on monetary policy given the rapidly changing macroeconomic environment.
Monetary policy was in accommodative mode even before the outbreak of Covid-19, with a cumulative drop in the repo rate of 135 basis points between February 2019 and the start of the pandemic.