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Rate cut hopes rise

Rate cut hopes rise
Highlights

As the six-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel began its two-day brooding session on Tuesday to take stock of the country\'s economy and lay roadmap for the monetary policy for the next couple of months, the hopes for cut in key lending rates have soared. 

As the six-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel began its two-day brooding session on Tuesday to take stock of the country's economy and lay roadmap for the monetary policy for the next couple of months, the hopes for cut in key lending rates have soared.

Finance Minister Arun Jaitley is in the forefront of those seeking rate cut, saying there is no better time than now for the Reserve Bank of India to go for a rate cut. He cited lower inflation and possibility of good monsoon among the reasons that warranted a cut.

“Balancing between petrol and shale gas indicates that the oil prices will not go up through the roof. Growth and investment needs to improve. Any Finance Minister under these circumstances would like a rate cut," was his candid comment to a business news channel.

There is a weight in his argument that favours rate cut. India's economy clocked lowest growth in three years last fiscal when GDP registered an upswing of 7.1 per cent. For record, Indian economy logged in a higher growth of 8 per cent (of course revised numbers!) in the previous fiscal, i.e., 2015-16.

As if that's not enough, the growth was much bleaker in the fourth quarter of last fiscal. The recently-released GDP numbers revealed that the country's economy grew by a mere 6.1 per cent in the Q4. The sole reason for the dismal growth is the ill-advised and haphazardly-executed demonetisation exercise that put the country on the tenterhooks of cash crunch for a long period.

Though those in the central government steadfastly refuse to admit the damaging side-effects of the note ban, the cash crunch still continues and is likely to have adverse impact in the current fiscal as well if something drastic is not done.

Thanks to the lower Q4 GDP numbers, India has lost its much-touted tag of the world's largest growing economy to China from which it grabbed the title last year.

India Inc has been pitching for a rate cut for quite some time, citing lower GDP numbers and lower inflation. In the last monetary policy announcement on April 6, RBI maintained status quo by keeping repo rate unchanged at 6.25 per cent for third time in a row.

It cited upside risk to inflation as the reason for its decision. However, retail inflation, based on Consumer Price Index (CPI), declined to a multi-year low of 2.99 per cent in April 2017 from 5.47 per cent in the year before. So, the chances of inflation going up drastically are considerably reduced now.

But there is a contrarian view as well with many bankers and experts maintaining that RBI will go for status quo on key rates yet again. With GST rolling out from July 1, the apex bank will gauge its impact on inflation before reducing rates, they feel. But odds favour a cut and the outcome will be out in a few hours!

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