Case for RBI rate cut: All you need to know in a glance

The next meeting of the Monetary Policy Committee is scheduled on October 3 and 4, 2017. The panel will have to look at ways to spur lending and consumption, and revive the economy.

Published: September 30, 2017 3:34 AM

Manufacturing was at a five-year low, mining collapsed and construction stagnated. (Image: Reuters)

The next meeting of the Monetary Policy Committee is scheduled on October 3 and 4, 2017. The panel will have to look at ways to spur lending and consumption, and revive the economy. The gross domestic product (GDP) growth for the three months to June this year fell to 5.7%, the lowest since the Narendra Modi government came to power in 2014. Manufacturing was at a five-year low, mining collapsed and construction stagnated. The slowdown corroborates the corporate results for the first quarter of this fiscal, which had shown net profits declining for many listed firms.

Agriculture growth in real terms, too, slowed to 2.3% from 5.2% in the fourth quarter. Services sector growth, however, anchored overall gross value added (GVA) growth, rising 8.7% from 7.2% in the fourth quarter driven by improvement in two sectors—trade, hotels, transport and financial services. The growth in GVA was 5.6% in Q1FY18, which was the same in Q4FY17, indicating that the waning demonetisation impact was offset by rising anxiety over the goods and services tax.

Investments have slowed down and several large industries are reporting low capacity utilisation. While Inflation consumer price index (CPI)-based inflation rose to a five-month high of 3.36% in August, it still remains within RBI’s target of 4% within a band of +/-2%. The government have held a series of meeting to devise ways to revive the economy, boost exports, spur investments, and create jobs.

Analysts say there is a compelling case for RBI to ease the policy rate to support growth. The central bank has cut rates only once this financial year in its bimonthly policy meeting in August. Also, the rate cut was the first in 10 months and brought rates to a near seven-year low. It has maintained a neutral outlook, citing uncertainties in inflation trajectory.

http://www.financialexpress.com/opinion/case-for-rbi-rate-cut-all-you-need-to-know-in-a-glance/876287/