oppn parties RBI Rate Cut: Lending By Banks Must Take Off To Revive The Economy

News Snippets

  • India's sovereign green bonds were oversubscribed four times as the RBI received 266 bids worth Rs 32892cr agaisnt the target of Rs 8000cr
  • Google tweaks its Android and India app store policy to allow manufacturers and users to choose certain things instead of compulsorily using Google apps after the CCI order and fine for unfairly dominating the market
  • Former US secretary of state calls former Indian external affairs minister Sushma Swaraj a "goofback" and a "hinterland political hack". MEA S Jaishankar slams him
  • Jamia screening of BBC documentary on Gujarat riots cancelled after the university was turned into a fortress and later 13 students were detained by the police
  • Supreme Court grants conditional interim bail for eight weeks to Lakhimpur Kheri accused Ashish Mishra. The bail can be further extended based on his conduct. He was asked to stay outside Delhi-NCR and UP and surrender his passport
  • After the JNU administration tried to thwart the students from screening the BBC documentary on the Gujarat riots and PM Modi, now students of Presidency and Jadavpur universities in Kolkata have decided to screen it 5 times next week
  • While a US research frim Hindenburg says its analysis found the Adani group overleveraged and claimed that its bubble will burst very soon and that sent the price of group companies crashing (Adani companies lost a combined Rs 55000cr), Adani group said the report was 'baseless' and 'malicious'
  • This time Enforcement Directorate arrests TMC spokesperson Saket Gokhale under PMLA for money laundering
  • Padma awards announced on Republic Day: Mulayam Singh Yadav, architect Balkrishna Doshi and ORS pioneer Dilip Mahalanobis get Padma Bibhushan posthumously, Padma Bhushan ius awarded to Kumar Mangalam Birla and 8 others and 91 get Padma Shri
  • Stocks fall big time on Wednesday on F&O expiry, finalncial and banks take big hit: Sensex tumbles 773 points to 60205 and Nifty 226 points to 17892 even as the market volatility meter shoots up by 8.51%
  • World Cup hockey: Germany stun England 4-3 to reach semifinals; Netherlands beat Korea 5-1 to enter last four
  • Australian Open: Sania Mirza and Rohan Bopanna reach the finals
  • Suryakumar Yadav is named ICC Cricketer of the Year 2022 and Renuka Singh gets the ICC Emerging Cricketer of the Year 2022 award
  • BCCI gets a whopping Rs 4670cr in the auctions for the 5 teams in WIPL or as it will be known now, WPL. Adani Sportline gets Ahmedabad for Rs 1289cr while Mumbai Indians get Mumbai for 913cr
  • Calcutta HC overturns the hookah bar ban in Kolkata by saying that it is not an illegal trade
India Commentary Wishes A Happy Republic Day To All Its Readers /////// India Commentary Wishes A Happy Basant Panchami And Saraswati Puja To All Its Readers
oppn parties
RBI Rate Cut: Lending By Banks Must Take Off To Revive The Economy

By Linus Garg
First publised on 2019-04-05 23:15:48

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.
The financial markets had expected the RBI’s monetary policy committee (MPC) to cut repo rates. While the majority expected it to be 25 basis points, some even expected the MPC to go deeper and announce 50 basis points cut as inflation was way below RBI’s target of 4%. When the MPC chose to cut interest rates by only 25 basis points, it showed that it had taken a much broader view of the realities than just be bound by lower inflation and slowing growth.

There are two things on the horizon that can easily cause a spike in inflation. The first is the forecast that monsoons in India this year could well be below normal due to El Nino. Lower crop production could inflate the price of the food basket and cause the overall inflation to jump by leaps and bounds in no time. Then, oil prices, despite the global economic slowdown, show no signs of going down. As the Opec cartel has cut down production, oil prices are hovering a $70 per barrel. The good news is that the economic slowdown means that there is little chance of oil prices jumping sharply but the chance of them going down is also remote.

Hence, the RBI has rightly given a small nudge to the economy rather than go the whole hog. It has decided to wait until the next meeting in June to take further action. With two successive rate cuts and a huge amount of liquidity injected in the system, lending has now to take off if the slowing economy is to be revived. For that to happen, banks have to pass the rate cut to borrowers. Last time, that did not happen. But now the RBI and the government have to nudge the banks seriously to start lending to good borrowers at rates that match the rate cuts by the RBI. More than that, the government will have to revive the economy by investing in infrastructure. But all that can only happen when a new government is in place in June. Hence, the next MPC meeting will be of great significance.