RBI may opt for an additional repo rate cut by 25 basis points

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RBI may opt for an additional repo rate cut by 25 basis points

Several experts feel that the Reserve Bank of India (RBI) may usher in a further round of repo rate cuts when the MPC (Monetary Policy Committee) spearheaded by the RBI Governor, meets between the 4th and 6th of August, 2020. The RBI has already reduced policy repo rates by a whopping 115 basis points between March and May this year. A minimum repo rate cut of 25 basis points may be chosen by the RBI once again with a looming need to revive the Indian economy which has been impacted by the COVID-19 pandemic. 

The RBI has been pro-actively unveiling several measures to curb the economic impact of the coronavirus on the Indian economy. Experts like the ICRA Principal Economist Aditi Nayar, have opined that a repo rate reduction of 25 basis points is forecasted along with a reverse repo rate cut of 25 basis points. The CEO & Managing Director at Union Bank of India, Rajkiran Rai, has also opined that the repo rate may be cut by 25 basis points. 

Some feel that the RBI may not cut rates at the current juncture, in continuing with its accommodative outlook and stance, particularly since the system currently has sufficient liquidity with rate transmission taking place as well. Experts are also looking forward to measures related to restructuring of loans/debt in stressed economic sectors and other measures for demand revival.

Also read: Understanding Repo rate, Reverse Repo rate, CRR, SLR & Base Rate

The Founder and CEO at Square Yards, Tanuj Shori, stated that with the current economic challenges in India, a further relaxation of the repo rate should be considered by the MPC of the RBI. He also added that along with lower rates of interest, the Government should look at other measures such as a reduction in stamp duty in order to boost the Indian real estate sector. Shori opined that these measures were extremely necessary since the real estate sector offers employment to more than 50 million people in the country while contributing hugely to its GDP as well. 

It remains to be seen how the RBI balances the need to revive demand with containing inflation which has soared marginally across the country in recent months.

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Published Date: 28 July 2020