Sensex falls near 50 points post RBI monetary policy

Sensex falls near 50 points post RBI monetary policy

The RBI is expected to cut repo rates by 25 basis points which could make way for cheaper loans.

Mumbai: Economists, lenders and media reports have been harping on about a policy rate-cut in the Monetary Policy Committee's (MPC) August meet scheduled. Falling retail inflation, which fell to a historic low of 1.54 per cent in June, slowing economy that grew at a subdued 6.1 per cent last quarter, and weak private-sector investment are prompting a rate revision. The Monetary Policy Committee of RBI is headed by RBI governor Urjit Patel. Yes Bank MD and CEO Rana Kapoor said: "India's inflation has undergone a structural shift, with the emergence of "new normal" at lower levels".

Caution ahead of announcement of the monetary policy review by the Reserve Bank of India (RBI), coupled with selling pressure witnessed in metal, capital goods and FMCG stocks, kept investors' sentiments subdued.

RBI rate cut by 25 basis points for repo and reverse repo was long overdue since 2016. It is not just the NDA but also the UPA government indicated in loud and clear terms that it expected much lower rates from the RBI.

The RBI sharply cut its inflation forecasts at its last meeting, in June, but it still believes consumer prices in October-March will rise 3.5-4.5 percent from a year earlier.

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The MPC policy decision would further strengthen macro stability as we strive to optimise the growth - inflation dynamics; and not leverage one at the cost of other.

"Given the liquidity conditions prevailing and that we have reduced policy rates by substantial amount since start of easing cycle, I think there is scope for banks to reduce lending rate for those segments".

RBI also said that it is not fully satisfied with the MCLR (Marginal Cost of Lending Rate) system and have formed a study group to explore linking the bank lending rates directly to market determined benchmarks.

Industry chambers have said the current situation in the country warranted a steeper rate cut of 50 basis points from the RBI to spur growth. On their part, the government and the Reserve Bank are working in close coordination to resolve large stressed corporate borrowers and recapitalise public sector banks within the fiscal deficit target.

The central bank has previously warned that inflation could accelerate due to a seasonal rebound in food prices and factors such as planned pay hikes for government employees.

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