RBI To Cut Rates In December, But Still No Respite For Economy: Poll

RBI To Cut Rates In December, But Still No Respite For Economy: Poll

RBI has so far cut rates by 135 basis points this year to 5.15 per cent.

 

Bengaluru: The Reserve Bank of India will cut interest rates in December for a sixth time this year, and again before July, according to economists in a Reuters poll who forecast those reductions would either marginally boost the economy or have no impact.

Currently the most aggressive major central bank in the world, the RBI has cut rates by 135 basis points this year to 5.15 per cent, but inflation has remained low by historical standards and policymakers have barely moved the needle on growth.

The economy expanded 5.0 per cent in the April-June quarter on a year earlier, its slowest annual pace since 2013, and was expected to grow 4.7 per cent last quarter, according to the latest Reuters poll, taken November 20-25.

That was significantly lower than the 5.6 per cent rate predicted in the last poll, and would mark six consecutive quarters of slowing growth, a first since 2012. It also comes despite a recent series of fiscal stimulus from Prime Minister Narendra Modi’s government, which was re-elected in a landslide in May.

“Further rate cuts are likely to have a limited impact on the economy as cost of borrowing is not the pressing issue. The lack of risk appetite and fragile sentiment are holding back fresh investment in the economy,” said Sakshi Gupta, senior India economist at HDFC Bank.

“While further interest rate cuts would support growth at the margin, we need to see a turnaround in sentiment to restart the investment cycle.”

Recent business surveys have suggested the economy would not improve in the near-term.

A significant minority of economists – 24 of 56 – who answered an additional question in the poll said rate cuts would marginally boost the economy, while nearly a third said they would have little or no impact.

The remaining 15 economists said rate cuts would prevent growth from slowing further and none said they would significantly boost the economy.