oppn parties RBI Cuts Rate, Changes Stance To Accommodative

News Snippets

  • Maratha quota bill likely to be tabled in Maharashtra assembly today
  • Arvind Kejriwal skips ED summons for the 6th time, says the case is in court and will follow court's decision
  • PM Modi says UP has gone from 'red tape' to 'red carpet' in 7 years of 'double engine' government
  • Farm unions reject government offers, to resume Delhi march from today
  • Centre says some Aadhar cards in Bengal 'deactivated' due to technical glitz, will be activated back soon
  • Supreme Court stays LS privilege panel summons to Bengal officials over BJP MP Sukanta Majumdar injury case
  • Supreme Court junks Sandeshkhali petition, says it cannot be compared to Manipur, asks petitioner to approach Calcutta HC
  • Supreme Court gets tough on Chandigarh mayoral elections, asks for ballot papers and video footage, does not order re-election
  • Government starts withdrawing old small tax demands, up to Rs 25000 per entry till FY 2009-10 and up to Rs 10000 per entry from FY 2010-11 to FY 2014-15 with an overall ceiling of Rs 1 lakh per tax payer
  • Stocks remained positive on Monday: Sensex gained 281 points to 72708 and Nifty 81 points to 22122
  • Jasprit Bumrah likely to be rested for 4th Test while K L Rahul may be back
  • FIH Pro League hockey: India beat Spain 8-7 in shootout
  • SP leader Salim Sherwani, miffed at no Muslim candidate given RS ticket, quits party
  • Army going for big (Rs 57000cr) upgrade in combat vehicles to replace T-72 tanks
  • Mamata Banerjee says the BJP is doing nothing to resolve the Sandeshkhali dispute but instead fanning the fires to escalate it
History created in Supreme Court as Chandigarh mayoral poll ballots counted in court, judges declare AAP candidate Kuldeep Kumar winner after taking into account the votes defaced by returning officer Anil Masih
oppn parties
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.