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The Economic Times
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| 24 January, 2021, 06:43 PM IST | E-Paper
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    RATE CUT

    Reserve Bank of India to be on a long-pause in rates on sticky non-food inflation: Report

    It can be noted that the high inflation driven by the food prices has forced the RBI to go for a status quo in rates for the three consecutive reviews of the bi-monthly policy meetings, even as growth continues to be in the negative territory. The RBI expects the GDP to contract by 7.5 per cent for FY21.

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    • Diesel rates had gone up by Rs 12.55 a litre between June 7, when oil firms resumed revising prices in line with cost, and July 25. Diesel price has remained unchanged in the country since July 25, except in Delhi where a reduction in VAT lowered the rate by Rs 8.38 per litre.

      Both Fitch and Goldman Sachs have forecast a sharp bounce-back for India in FY22 but attributed this to the lower base of the current fiscal year. Fitch’s estimate for India was in contrast with its marginally improved projection for the global economy in 2020.

      The ratings agency said the BCA downgrades take into consideration rising risks to the banks' asset quality as a result of the severe economic contraction, which will result in an increase in credit costs.

      Javadekar who was speaking at the 60th Annual Convention of industry body Society of Indian Automobile Manufacturers (SIAM) said he will discuss the industry’s suggestion for a temporary reduction in GST with the Prime Minister and the Finance Minister.

      RBI had cut rates by 1.15% in two moves since the onset of the pandemic in March this year in order to push economic growth, but surprised many by holding on to rates at the August review as inflation overshot its target. If RBI continues with unconventional policy measures it would help the financial markets because it has been significantly able to reduce the long and variable lags of monetary policy through successes like fastest rate transmission and restoring financial stability.

      This is the fourteenth consecutive rate cut announced by the bank since July 2019, the release by Union Bank said. Indian Overseas Bank (IOB) has also reduced its MCLR by 10 basis points (bps) across all tenors effective Monday.

      The six-month MCLR has been cut to 7.40 per cent from 7.50 per cent, the bank said. The one-year MCLR has been revised to 7.45 per cent from 7.55 per cent earlier. The revised lending rates will be effective from August 7, said the bank.

      Inflation, as measured by the CPI, was 6.09% in June, up from 5.84% in March, the last official headline inflation number released by the govt, even as food inflation cooled to a nine-month low of 7.87% in June from 9.2% in May. As per experts, a decline in demand has not had any impact on prices and inflation has hardened on supply side disruptions.

      Though credit growth is slower, banks have had to reduce lending rates following the RBI’s rate cuts. Data from the RBI show that the monthly weighted average lending rates on fresh loans slipped 28 basis points for commercial banks between March and May, though lower than the 115-bps cut by the RBI during that period.

      Rathin Roy said the assumption that rate cut helping deliver growth is not working in simplistic way.

      India's economy may contract by 3 to 5 per cent in FY'21, which may trigger a 50 to 150 bps points reduction in benchmark repo rate by the central bank during the year.

      Bengaluru-based Canara Bank has cut its one-year MCLR to 7.55 per cent from 7.65 per cent earlier. Pune-headquartered Bank of Maharashtra (BoM) has reduced one-year MCLR to 7.50 per cent from 7.70 per cent.

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