Tuesday, 29 March 2016

RBI set to deliver another Rate Cut

The stage is set for the Reserve Bank of India (RBI) to cut interest rates in its first annual policy statement for FY17 to be announced on April 5, delivering a much needed boost to Asia’s third biggest economy at a time when a growing global gloom threatens to hurt exports.

The central bank is poised to cut the repo rate by 25 basis points as softening consumer inflation, coupled with the government’s decision to maintain fiscal prudence in the Union Budget leave more leeway for policy easing to help boost demand and revive investments.

The Indian economy is currently being viewed as a beacon of stability because of the steady disinflation, a modest current account deficit and commitment to fiscal rectitude. This needs to be maintained so that the foundations of stable and sustainable growth are strengthened.
Benign Inflation, fiscal prudence gives room for rate cut
The NDA government in its Union Budget 2016-17 maintained its fiscal deficit target at 3.5 per cent of the country’s GDP in FY 2016-17, the lowest since 2008, while that for the ongoing fiscal was retained at 3.9 per cent.

India’s wholesale inflation stayed in the negative terrain for the sixteenth straight month, as wholesale prices fell 0.91 per cent year on year in February 2016, compared to an annual drop of 0.90 per cent in January 2016. Moreover, the consumer inflation cooled to 5.18 per cent in February 2016 from 5.69 per cent in January 2016, paving the way for further softening of the borrowing costs.

The RBI in 2015 cut interest rates by an overall 125 basis points with the repo rate currently standing at 6.75 per cent. 

Latin Manharlal Group

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