In five meetings held in 2019, the repo rate has been reduced by 1.35 percent so far. RBI may cut the repo rate on Thursday for the sixth time in a row after the growth rate fell to 4.5 percent in the second quarter. This deduction is likely to be 25 basis points.
If this happens, the repo rate will reach a 10-year low. Currently, it is 5.15 percent. It will come down to 4.9 percent after a 25 basis point cut, the lowest level of repo rate since March 2010.
According to economists, in the second quarter of 2020, the repo rate can be cut by 15 basis points. A three-day meeting of the Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, is going on since Tuesday. Information about the decisions made in the meeting will be released on RBI website on Thursday at 11.45 am.
There may be cuts
The Reserve Bank’s full thrust is on accelerating the growth rate amid the pressure of rising retail inflation. The RBI may further reduce the repo rate by 0.40 percent in the current financial year. Global brokerage firm BofML said in a report that the repo rate may be cut at the next meeting of the MPC.
There has been speculation about the RBI’s monetary policy since the retail inflation reached 4.62 percent in October. Meanwhile, Bank of America Merrill Lynch (BofML) has predicted that the RBI will further rationalize the lending rates to bring the economy to a standstill and could cut the repo rate to four percent by February.
The RBI takes into account retail inflation figures while setting the repo rate. In fact, the growth rate fell to a six-year low of 5 percent in the June quarter and analysts are speculating that it may go below 5 percent in the September quarter.
In such a situation, the RBI can cut the repo rate by 0.25% in December and 0.15% in February to break the sluggishness of the economy. Kotak Mahindra Bank has also predicted that the RBI may cut the repo rate by 0.50 percent this year in view of sluggish growth.