​RBI lending rates may get a booster dosage cut of 50 bps

Owing to a slowdown in consumer demand and a weak global growth outlook, RBI governor Raghuram Rajan may give a "booster dosage" of nearly 50 basis points worth of cut in key lending rates while announcing the fourth bi-monthly monetary policy tomorrow.

Rajan will have to take into account various factors including low inflation, sluggish industrial output, below normal monsoon and most significantly the recent decision of the US Federal Reserve to postpone interest rate hike while deciding on the key lending rate.

In order to spur economic recovery and mitigate the impact of slowing China on India, the RBI governor has been under pressure from the Finance Ministry as well as the industry to slash interest rate.

Last week, Finance Minister Arun Jaitley asserted that the interest rates should come down. He had said inflation is "very much under control" and the country is better prepared than most emerging economies to weather the global economic turbulence.

DS Rawat, secretary general, Associated Chambers of Commerce and Industry of India (Assocham), said, "The trouble has been aggravated by a high level of debt in the private sector which makes it onerous for the companies to service the debt. Rather, than a small cut, at least a 50 basis points reduction in repo (repurchase rate) with a clear message to the banks to pass on the same, should be pushed."

Most bankers feel that benign inflation and status quo by US Fed have given room for the RBI to cut short-term lending (repo) rate by at least 0.25 per cent to 7%. Major lenders like the State Bank of IndiaBSE 0.17 % also expect RBI to lower the repo rate.

Furthermore, not just the industry, but equity and currency markets, would set their eyes on the fourth bi-monthly monetary policy review of the RBI slated for September 29.

It is expected that the easing of key lending rates will restore investors' confidence, prop up sales of interest in sensitive sectors like automobile, capital goods and real estate.
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