oppn parties RBI Cuts Rate, Changes Stance To Accommodative

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  • Hindenburg slams Adani response to its report, says nationalism cannot be an excuse for fraud
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  • Adani Group companies continue to bleed although Adani Enterprises reversed the trend to gain on Monday
  • Markets end positive after a highly volatile session on Monday: Sensex gains 169 points to 59500 and Nifty 44 points to 17648
  • Satellite images show significant increase in night lights in India with some states growing at 43% in 10 years and some even 400%. Economists consider this as indicator of growth
  • Bombay HC has ruled that there will be no parole for TADA victims in Maharashtra
  • Courts handed out the death sentence to 165 accused in 2022, the highest in 40 years
Investors lose Rs 5.6 lakh crore as Adani Group companies lose 29% market value in three days and the carnage is continuing
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RBI Cuts Rate, Changes Stance To Accommodative

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Sunil Garodia By our team of in-house writers.

Benign inflation, slowing economy and the return of NDA (that assures continuity in policy and the hope of a renewed sense of fiscal responsibility on the part of the government) has allowed the RBI to change its policy stance from neutral to accommodative and reduce the key repo rate by 25 basis points to 5.75 percent, the lowest since September 2010. The change in stance also means that further rate cuts are in the offing.

Although the markets were not enthused by the rate cut (the Sensex crashed by 554 points after the announcement) there are many positives in the RBI decision. All economic indicators are signaling a slowdown with demand for goods and services not picking up. Some sectors are showing negative growth. Although it is true that projects are not dependent only on the interest rates (promoters factor in the cost of acquiring capital in their overall project costs and go for the project if they can sell the products after acquiring capital at current interest rates), it is also true that some projects that seemed unviable at high interest rates may become viable at lower costs. Lower interest rates on retail loans may also spur the demand for goods thereby giving a boost to the manufacturing sector.

The economy needs a push and making capital available at a lower cost is one of the ways to encourage entrepreneurs to expand capacity or go for new projects. The RBI has made it known that it will prod the banks to pass on the benefit to customers. If there is a renewed demand for products due to cheaper loans which in turn encourages entrepreneurs to expand or install new projects then the economy will come out of the morass it seems to be sliding in. But the government will have to play its part by keeping a tight control on fiscal deficit and making investments in infrastructure.