In
a survey conducted by IANS, economist and industry experts pointed out
that despite a rise in retail food inflation, growth concerns will
necessitate the RBI to go in for another rate cut during the penultimate
monetary policy review for FY20.
"The spike in the CPI inflation
in October 2019 has contrasted with the moderation in the GDP growth in
Q2 FY2020, complicating the next policy decision," ICRA's Principal
Economist Aditi Nayar said.
"In October 2019, the MPC had
indicated that it would retain the stance as accommodative for as long
as necessary to revive growth. Based on this, there appears to be a high
likelihood of another repo rate cut in the December 2019 policy review,
with the MPC likely to look through the vegetable price-led uptick in
the CPI inflation."
Lately, data showed that a substantial rise
in food prices had lifted India's October retail inflation to 4.62 per
cent from 3.99 per cent in September.
The data also indicated
that retail inflation level has breached the medium-term target for
Consumer Price Index (CPI) inflation of 4 per cent. The target is set
within a band of +/- 2 per cent.
But, another macro-data point
showed that consumption trend along with a massive contraction in
manufacturing, agriculture and mining activities subdued India's GDP
growth rate down to 4.5 per cent in the second quarter of 2019-20.
"We
expect more than 25 basis points cut in upcoming policy. This should
take the repo rate down to at least 4.90 per cent. We think there is
more steam in conventional rate cut cycle," Edelweiss Securities' Lead
Economist Madhavi Arora told IANS.
Industry observers prescribed a
range between 25 and 50 basis points to bring down the cost of finance
and give impetus to consumption growth.
"Given the increased
concerns on growth with the Q2 GDP print at 4.5 per cent, we believe the
accommodative policy will continue in the near term and MPC will
actively consider a rate cut again," Acuite Ratings and Research's Lead
Economist Karan Mehrishi said.
"The rate cut can be between 25-50 basis points."
Besides the GDP growth rate, other macro economic indicators like core industrial production and automobile sales have slumped.
Consequently,
a monetary policy easing should allow banks to reduce their lending
rates and help both consumers and the industry to get cheaper finance.
However,
Brickwork Ratings' Chief Economic Advisor M.Govinda Rao said: "This
reduction will certainly not be sufficient to spur growth to the extent
desired. First of all, given the low level of the household sector's
financial savings, the transmission will be sticky."
"Besides, the hesitancy and the fear factor of the bankers to lend to the manufacturing sector have not been addressed yet."
A
faster transmission of earlier policy easing by lenders is urgently
required, as high interest rates and liquidity constraints have
demoralised auto, home and capital goods buyers.
"Transmission of
rate cuts still remains an issue as the positive effect of the five
consecutive rate cuts is not visible in the economy," said Geojit
Financial Services' Economist Deepthi Mary Mathew.
In October,
the RBI's MPC stuck to its "accommodative stance" by reducing its key
lending rate to 5.15 per cent, the lowest in around a decade.
The record low repo rate was set at 4.75 per cent in April 2009 as a result of the global financial crisis.
