Rate cuts continue

12 AUG,2019 | MEDC


 

With an unconventional repo rate cut of 35 basis points, the RBI has shown that it means business. Undertaken primarily to increase the credit flow to certain key sectors of the economy, this is good news for the stressed out NBFC and MSME sectors. With an adequate monsoon, farm and non-farm activity in rural areas is likely to pick up and a rate cut was what was needed at this juncture, as it has direct implications for industrial growth. According to RBI surveys, consumers were turning gloomy about the economy and the situation was expected to remain tepid. Under the circumstances, a rate cut was warranted. Even though this step was necessary to reduce the cost of capital in line with inflation expectations, what really matters is that banks pass on the lower cost of borrowing to their customers. Doing so will ensure that the RBI’s action produces the desired stimulus to economic growth.

*Photo Credit: Google

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