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<ul><li>After a rate cut in February, the mandate of the central bank was clear: it wants to boost lending and thereby stimulate economic growth. </li><li>However, the country’s commercial lenders have been slow to pass on the rate cut to consumers. </li><li>As a result, the governor of the Reserve Bank of India, <keyword id="6359111" type="UNKNOWN" weightage="20" keywordseo="Shaktikanta-Das">Shaktikanta Das</keyword>, met with the CEO’s of the country banks to do so. The banks complained that they didn’t have much room to cut rates but said they would try their best. </li></ul>After <a href="https://www.businessinsider.in/rbi-policy-update-cuts-interest-rate-citing-low-inflation-and-it-may-boost-growth/articleshow/67880230.cms">a rate cut </a>in February, the mandate of the central bank was clear: it wants to boost lending and thereby stimulate economic growth as the country heads into national elections. And now it wants Indian banks to follow suit. However, the country’s commercial lenders have been slow to pass on the rate cut to consumers in the form of cheaper small business loans, home loans and car loans. As a result, the governor of the Reserve Bank of India, Shaktikanta Das, met with the CEO’s of the country banks - such as Punjab National Bank, ICICI Bank, Kotak Bank, Bank of Baroda etc - yesterday to exhort them <a href="https://www.business-standard.com/article/finance/rbi-governor-das-asks-bankers-to-pass-on-rate-cut-benefits-to-consumers-119022101292_1.html">to cut lending rates</a> for customers so as to encourage consumer confidence and investment. While the banks’ response was mostly non-committal, they said they would <a href="https://www.thehindu.com/business/will-try-to-pass-on-rate-cut-banks/article26333312.ece">try their best to cut rates</a> on home loans and personal loans. They have complained in the past of their high borrowing costs and shrinking margins - both of which are a consequence of their stock of bad loans. They also pointed to a lack of liquidity in the banking system, as consumers are hoarding cash ahead of elections. After the rate cut decision, wherein the base lending rate was cut by 25 basis points to 6.25%, the State Bank of India only cut home loan rates by <a href="https://economictimes.indiatimes.com/markets/stocks/news/sbi-cuts-interest-rate-on-home-loan-by-5-bps/articleshow/67910450.cms">a mere 5 basis points</a>. The only other bank to do the same was Bank of Maharashtra - by the same measly amount. Earlier this week, the chairman of State Bank of India, Rajnish Kumar, said that banks did not <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/headroom-to-cut-rates-does-not-exist-sbi-chairman/articleshow/68044675.cms">have the room to cut lending rates</a> because it would need to cut its deposit rates first. And it couldn’t do this unless other banks did so as well, because otherwise its customers would park their money in banks with higher deposit rates. SEE ALSO: <a href="https://www.businessinsider.in/rbi-policy-update-cuts-interest-rate-citing-low-inflation-and-it-may-boost-growth/articleshow/67880230.cms">India’s central bank cuts interest rate to give growth a chance</a> <a href="https://www.businessinsider.in/rbi-pays-interim-dividend-central-government/articleshow/68057230.cms">The Modi administration’s overspending gets rewarded with an interim dividend from the central bank</a>

India’s central bank is calling on the country’s lenders to lower rates

<ul><li>As expected, RBI cut repo rate by 25 basis points or 0.25% </li><li>It also kept its stance as accommodative. </li><li>BSE Sensex rose 200 points in the morning anticipation of a sharp rate cut. </li></ul>Indian central bank today cut the repo rate by 25 basis points, and retained its accommodative stance. This is the fifth consecutive rate cut, brings interest rate to 5.15% at which the Reserve Bank of India (RBI) to banks. The RBI has cumulatively cut interest rates by 1.35% as of now, in multiple cuts. In the last monetary policy, it went ahead with a 35 basis point rate cut, which was unprecedented. RBI also reduced its growth rate projections for the current financial year to 6.1% from 6.9% earlier. The stock markets have been predicting a 25 basis point or higher rate cut and BSE Sensex rose 200 points in the morning in anticipation. “We pencil in a 40 bps of rate cut which should be a signal to the market that the Monetary Policy Committee is not quite done as it front loads the remaining couple of rate cuts in the cycle,” said Suvodeep Rakshit, Vice President &amp; Sr. Economist, Kotak Institutional Equities. RBI has been saying that growth will be a primary concern. In the first quarter of the financial year, the economy grew at 5% instead of the estimated 5.8-6.6% the first half. “With inflation remaining within its comfort range, despite recent onion price increases, revisions to its growth forecast warrant a sharper-than-usual rate cut in the October policy,” said Rakshit. Experts also believe that a chunky rate cut would speed up the slow transmission of rate cut benefits by banks to consumers. “The monetary policy expectation is not just limited to rate cuts. While aggregate liquidity conditions have improved, transmission remains slow. The RBI’s assessment of the same will be critical,” said a report by Edelweiss Research.

RBI cuts interest rate by 25 basis points and lowers GDP forecast to 6.1%

<ul><li>This is India's first rate cut in 18 months. </li><li>Furthermore, the central bank changed its stance to “neutral”, indicating a possibility of another rate cut in the next few months. </li><li>After retail inflation crashed to a 18-month low in December 2018, it was widely expected that the RBI would have enough leeway to cut rates this month. </li></ul>The Reserve Bank of India (RBI) opted to cut <keyword id="6371181" type="UNKNOWN" weightage="20" keywordseo="interest-rates">interest rates</keyword> by 25 basis points to 6.25%. Furthermore, the central bank, which is now headed by government insider <keyword id="6359111" type="UNKNOWN" weightage="20" keywordseo="Shaktikanta-Das">Shaktikanta Das</keyword>, changed its stance to “neutral”, indicating a possibility of another rate cut in the next few months. Markets had already run up on Wednesday hoping for this slash in interest from the RBI. Benchmark indices, Sensex and Nifty, continued to hold on to the gains after the decision. After retail inflation crashed to <a href="https://www.businessinsider.in/no-low-inflation-is-not-always-a-good-thing-heres-why/articleshow/67541528.cms">a 18-month low</a> in December 2018, it was widely expected that the RBI would have enough leeway to cut rates this month after having to hike rates consecutively in June and August last year and maintaining a “calibrated tightening” stance in December. However, the <keyword id="6354642" type="PERSON" weightage="20" keywordseo="Modi">Modi</keyword> administration’s expansionary budget put a question mark around those plans. A cash handout scheme for farmers, a pension scheme for informal sector workers and tax breaks for the middle class have raised the probability of fiscal slippage. The stimulus package was expected to have an inflationary effect, which is why many thought that the RBI would opt for a wait-and-see approach. In June 2018, the central bank hiked rates for the first time in four years in response to higher inflation and a depreciating rupee - both of which were a outcome of rising fuel prices. The last time the RBI opted for monetary tightening was in January 2014, when it increased the repo rate to 8% to keep inflation in check. It had since reduced interest rates to support economic growth amid a global decline in oil prices. 
 



 
 
 
 
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 As fuel and food prices have moderated in recent months, the latter due to oversupply in the agricultural sector, inflation has been consistently trending downwards. Furthermore, having stalled at 3.6% for 2018-19 and 2019-2020, retail inflation is well below the RBI’s target of 4%, which had raised the prospects for a rate cut. 
 
 
 
 









 
 
 
 
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 Excluding food and fuel, core inflation has hovered around the 6% owing to higher medical and education costs. The divergence across different inflation baskets has caused the RBI to opt for conservatism when it comes to interest rate decisions. With the inflation outlook subdued, amid lower crude prices, the RBI likely felt the need to cut rates to spur economic growth. More importantly, ahead of national elections in May, a reduction in the cost of home loans and short-term loans for working capital is expected to lead to higher consumer and business confidence. SEE ALSO: <a href="https://www.businessinsider.in/india-markets-update-sensex-nifty-recover-late-and-moodys-on-budget-fiscal-deficit-target/articleshow/67831968.cms">Markets just can't believe India's latest budget math</a> <a href="https://www.businessinsider.in/heres-why-the-reserve-bank-of-india-hiked-interest-rates-for-the-first-time-since-january-2014/articleshow/64490708.cms">Here’s why the Reserve Bank of India hiked interest rates for the first time since January 2014</a>

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India’s central bank is calling on the country’s lenders to lower rates

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RBI cuts interest rate by 25 basis points and lowers GDP forecast to 6.1%

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India’s central bank cuts interest rate to give growth a chance

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