RBI monetary policy: Investors awaiting outlook beyond another repo rate cut

Investors are more interested in the Reserve Bank of India's outlook guidance on the state of the economy than a mere cut in the repo rate by the ongoing meeting of the Monetary Policy Committee. The meeting is expected to cut the rates for the fourth consecutive time before concluding on Wednesday amid perceptions of a widespread economic slowdown, according to reports.

Industry experts expect the six-member panel headed by RBI governor Shaktikanta Das to take steps to improve the liquidity situation and also ensure the transmission of rate (repo) cuts to borrowers by the banks. The lenders apparently failed to transfer the benefits of the past rate cuts to the customers citing liquidity issues spilling over from the past years. The economy's illiquidity has been suggested as the reason for the slowdown hurting Prime Minister Narendra Modi's second stint in government after sweeping to power with a decisive majority for his Bharatiya Janata Party (BNP) in the general elections 2019.

The meeting that began on Monday is expected to bring out its Third Bi-monthly Monetary Policy Statement for 2019-20. The MPC is likely to cut rate by 25 basis points, the Economic Times said citing the opinion of Rajkiran Rai G, the managing director and CEO of the Union Bank of India. "At this point in time, we need growth impetus. I am sure they will reduce rates," the report quotes him as saying.

Trade body Confederation of Indian Industry (CII) said in a statement that the central bank started its interest rate easing cycle in February 2019, taking cognizance of the headwinds to growth and the inflation below the RBI's 4 percent target. However, the transmission of the rate-cuts to the end-consumers has remained gradual and relatively lower than the repo rate revisions, the report cited CII as stating.

The CII wants the RBI to cut cash reserve ratio (CRR) of the lenders by 50 bps, which would release around Rs 60,000 crore into the system. "This along with infusing liquidity in the banking system will also reduce the burden on banks' resources, given the fact that currently, the credit-deposit ratio is hovering at a high of 77-78 percent," the statement said.

Industry body Assocham, meanwhile, said that the economy requires funding at economical rates for further investment to boost growth and speed up the transmission effect because the inflation is well contained. "Addressing the liquidity problem of non-banking financial companies (NBFC), a rate cut will help in boosting the economic growth and consumer spending that may increase the demand for passenger and commercial vehicle," the report saying quoting from its statement. When asked for expectations from the MPC, Anshuman Magazine, CBRE's chairman and CEO for India, South East Asia, Middle East, and Africa, said in the light of increasing investor confidence and consumer spending, the economic sentiments are currently looking up.

The retail inflation marginally accelerated, after the third consecutive policy rate cut by RBI to 25 basis points, he said.