InvestorQ : Why did the RBI reduce the growth rate to 6.1% and if that was the case, why did it not cut the rates by a bigger margin?
Aditi Sharma made post

Why did the RBI reduce the growth rate to 6.1% and if that was the case, why did it not cut the rates by a bigger margin?

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Tisha Malhotra answered.
2 years ago
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You are bang on target. In fact, growth revival was clearly the theme of the policy. Growth was the big missing link. Just look at the numbers and the RBI estimates. GDP growth for the June quarter fell to 5% and RBI has projected GDP for the second quarter at 5.3%. The full year estimates of the RBI have been downgraded by 80 bps to 6.1%. You must have also seen core sector growth dip to (-0.5%) and the PMI services dipping below 50. For the RBI, the policy undertone has clearly been about giving the growth push. Under these circumstances, you can argue that why only 25 bps because that already factored in by the markets. But if you read the sub-text, it is 25 bps rate cut for now; with the accommodative theme indicating that it was open for more cuts if required. The rate cut of 25 bps was lower than what the markets expects but with good reason. You must remember that repo rates are already at a 15-year low and room for further downsides is limited. The government has also recently given a fiscal boost to Indian companies by cutting tax rates to 22%. The real positive takeaway you must look at is that the stance of the policy was “Accommodative” leaving room for more rate cuts if required in future. But that will be gradual!

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