InvestorQ : What are the conditions that RBI has set in the policy for further rates cuts in the future and can we look for more in the December policy?
Aditi Sharma made post

What are the conditions that RBI has set in the policy for further rates cuts in the future and can we look for more in the December policy?

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Moii Chavate answered.
2 years ago
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It will be largely data driven and the RBI has already spoken about growth, transmission and inflation. We know that growth is weak so there is a strong case for further rate cuts to boost growth. Let us look at transmission and inflation.

Transmission

a) The RBI dwelt at length on the urgent need for transmission. By the RBI’s own analysis, out of the 135 bps cut till October 2019, the banks had only passed on 29 bps to borrowers.

b) RBI has reiterated, time and again, that such a low rate of transmission would not work as rate cuts would not translate into lower borrowing rates and hence will not spur growth.

c) At the same time, RBI has also expressed confidence that transmission will improve since banks have shifted to external benchmark based loan pricing from October. Next few weeks will be critical.

Inflation

RBI has projected inflation for the full year at a higher range of 3.2%-3.5%. However it does believe that inflation should be high enough to signify growth and low enough for more rate cuts. Food inflation is likely to remain tepid but RBI expects fuel deflation to negate the impact of food inflation.

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