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

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  • In a first, the Supreme Court recognizes marital rape, although for the limited purpose of allowing married women the right of abortion up to 24 weeks if they conceived as a result of forced sex by their husbands
  • Air India cuts discounts on base fare to students and senior citizens from 50% to 25%
  • Mallikarjun Kharge and Digvijay Singh are being touted as frontrunners to take on Shashi Tharoor in the elections for the post of Congress president
  • Sonia Gandhi will decide who will be Rajasthan CM if she feels there is a need to change guard after the near-rebellion by MLAs in the state
  • Ashok Gehlot bowed out of the race for being Congress president after meeting Sonia Gandhi
  • India has moved to the 40th spot in the innovation index, up 6 spots from last year
  • DGGI has alleged that top insurance companies, banks and NBFCs has committed a fraud of Rs 800cr by claiming input tax credit without underlying supplies
  • The Centre will borrow Rs 10000cr less than planned earlier due to good revenue collections
  • At $23.9bn, India's current account deficit widened to 2.8% in Q1, the worst in four years
  • Stocks continue to flounder on Thursday: Sensex sheds 188 points to 56409 and Nifty 40 points to 16818
  • The 36th National Games were declared open on Thusrday by PM Modi in front of a record crowd in Motera near Ahmedabad
  • Jasprit Bumrah most likely to miss T20 World Cup due to recurrence of back injury
  • PFI's political wing, the SDPI is on EC radar and action will follow soon if discrepancies are detected
  • Ashok Gehlot to meet Sonia Gandhi today, says all issues will be sorted out soon
  • Referring to the PFI ban, most Muslim organizations ask the government to take similar action against right wings organizations like the RSS, Bajrang Dal, VHP and the like
In a landmark order, Supreme Court rules that all women, married or unmarried, are entitled to safe and legal abortion up to 24 weeks of pregnancy as per the MTP Act
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.