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swati Bakhda made post

Can I expect a rate cut in the next RBI credit policy that is scheduled in June this year?

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K V RAO answered.
1 year ago


Please don't give importance to rate cuts or monetary policy. All these are short term hiccups. Changes in monetary policy do have an impact on corporate sector. But stock market has other serious issues to deal with. Further even within the corporate sector, a few high profile corporates follow up changes in monetary policy. Other mid cap and small cap companies are concerned with their business prospects. If you are an active player in financial stocks, you need to be active on monetary policy changes. Otherwise, it is a passing event.


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Dia Deshpande answered.
1 year ago


It is very likely that there will be a rate cut of anywhere between 25 to 50 basis points in the June policy. Most industry bodies like the CII and the FICCI have been demanding 50 basis points cut to push up growth in GDP and industrial growth. However, the Monetary Policy Committee (MPC), which delivers the RBI credit policy, may have the following points to consider before cutting rates in June.

· Is inflation going to be higher in the next few months? If inflation is tending higher due to higher food or fuel prices then the MPC may not be too keen to cut rates

· The decision will also depend on what is the focus of the RBI. If RBI prefers to infuse liquidity instead of cutting rates then the rate cut may not happen.

· Indian rates are also dependent on how the US bond yields move. If US yields are heading higher, then a rate cut may not happen. That does not look very likely at this point of time.

· Rate cut decision will also determined by foreign flows into debt. If the government wants to encourage FII flows into debt they will have to maintain a yield differential of nearly 5% over the US benchmark to make Indian bonds attractive.

· Finally, the RBI has not been too happy that the rate cuts in February and April did not get fully transmitted to the borrowers.

If you look at the above points, the rate cut decision looks like a 50-50 chance. However, you must remember that this is a new government that is just taking charge and they may want to project a business friendly image. That could mean a 25 bps rate cut.


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K V RAO answered.
1 year ago


Please don't give importance to rate cuts or monetary policy. All these are short term hiccups. Changes in monetary policy do have an impact on corporate sector. But stock market has other serious issues to deal with. Further even within the corporate sector, a few high profile corporates follow up changes in monetary policy. Other mid cap and small cap companies are concerned with their business prospects. If you are an active player in financial stocks, you need to be active on monetary policy changes. Otherwise, it is a passing event.