Post-demonetisation, RBI likely to cut interest rates maximum by 0.50% today

The Reserve Bank of India will most likely cut key interest rates later today with economists betting between 0.25% to 0.50% as the quantum of reduction.

The Reserve Bank of India will most likely cut key interest rates later on Wednesday with economists betting between 0.25% to 0.50% as the quantum of reduction.

The Reserve Bank of India will most likely cut key interest rates later today with economists betting between 0.25% to 0.50% as the quantum of reduction.(PTI)

At present, the repo rate which is the rate at which banks borrow from RBI, is at 6.25%.

The likely rate cut is attributed to slowing inflation. It will be done to boost growth as the government’s demonetisation has been affecting consumption.

Read: With credit demand down, banks may struggle to pass on any rate cut

Though India is the fastest growing economy as of now, with 7.3% GDP growth in July-September which was better than the previous quarter’s 7.1%, demonetisation has curbed spending power of RBI.

Former prime minister Manmohan Singh, a renowned economist, has said he expects GDP to fall by about 2%. Already, projections by economists of a 7.8% growth for 2016-17 have been scaled down to about 7-7.2%.

In October, the retail inflation was 4.21%, lower than 4.39% in September. The food inflation, meanwhile, stood at 3.32% compared with 3.96% in the previous month.

Announcement at 2.30 pm

The announcement of the fifth bi-monthly monetary policy will be made by the 6-member Monetary Policy Committee (MPC) led by RBI governor Urjit Patel today at 2.30 pm on RBI website.

Banks have already begun to reduce interest rates ahead of the policy announcement as cost of funds continue to decline on influx of deposits.

Read: As govt’s cashless payment tool battles faults, e-wallets gain

Bank of Baroda on Tuesday reduced its one-year benchmark lending rate by 0.20%.

“With the revision of MCLR by Bank of Baroda, the offered rate of interest on loan product will be lower by 20 basis points (0.20%) across all the tenors,” the bank said in a statement on Tuesday. For a one-year loan, the lending rates have been reduced to 9.05% from 9.25%.

Similarly, another government lender, Dena Bank, had reduced its MCLR by 10 basis points to 9.30% from 9.40% for one-year loan period.

Country’s largest bank State Bank of India will review its lending rates on Thursday.

Read:RBI to issue new Rs 100 notes soon, usage of older notes to continue

This will also be watched out on RBI Governor’s views on the impact of demonetization. Barring a couple of interviews stating that RBI is managing to increase supply of cash while asking people to remain calm, Patel has not spoken much on his views on the cash supply, deposits, economic costs, growth outlook, inflation and the impact of the demonetisation move.