With the change in stance to accommodative, a lower growth forecast (to 7 per cent in fiscal 2020 from 7.2 per cent) and RBI maintaining its inflation forecast at 4 per cent, it is likely that the central bank will cut rates again later this year. The impact, however, will strongly depend on the transmission mechanism.
This is because the RBI has not changed its stance from neutral to accommodative. An accommodative stance would have increased the probability of more rate cuts. A sticky bond yield indicates that borrowing costs for corporates will remain high, leading to bumpy transmission of RBI’s policy action.
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Gurumurthy said that it could imply they could be more measures in the coming days that help achieve faster and sizeable rate transmission–a pass through of 75 basis of the three rate cuts should.
“The RBI decision to cut repo rate was a welcome move. indicating upside risks to inflation have waned, whereas growth impulses in industry and services are weakening. We are hopeful that this.
Will meet bank heads on Feb 21 on transmission of rate cuts, says RBI Guv Earlier this month, the Reserve Bank cut the benchmark interest rate by 0.25 per cent to 6.25 per cent. However, only a handful of banks, including SBI, have reduced their rates, that too by just 0.05 per cent.
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However, with the cut, he will now have to pay only Rs 42,440, a saving of Rs 793. The RBI move, designed to ease the liquidity crunch, comes as a boost for the economy in an election year.
Otherwise, we would continue to be constrained by lack of transmission, it added. end-of Tags: reserve bank of india , rbi , state bank of india , sbi , rate cut
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However, this will have to be preceded with a cut in DRs. Though RBI’s stance on liquidity will help in transmission, right now they have only laid out the steps they will take.
Lower Interest Rates On Loans The RBI expects banks to pass on the policy rate cuts to consumers. It has been prodding banks to do a better job of transmission. The repo rate had come down from 6.50.
A 25 bps cut in the repo rate. in circulation-should improve the availability of liquidity and hence monetary transmission. While surplus liquidity is inconsistent with a neutral monetary stance,