Home and car buyers would be hoping for cheaper loans from banks after the Reserve Bank of India today cut key policy rates for the third time in a row. The bank’s Monetary Policy Committee (MPC) cut the repo rate — the rate at which it lends to the banks – by 25 basis points (bps) to 5.75%.
The central bank has already cut interest rates twice by 25 bps each this calendar year.
Consumers would be hoping to be third time lucky as the two previous cuts by the central bank have failed to meaningfully bring the lending rates down. This and other reasons have led to demand for consumer loans being sluggish, resulting in lower sales at manufacturing companies.
Domestic sales at Maruti Suzuki India Ltd, India’s largest passenger carmaker with over 50% market share, fell by 23.1% from a year ago to 125,552 units in April.
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The times have not been bad for the banks amidst gloom at non-banking finance companies (NBFC) which were major lenders of home, car and other consumer loans for two years before crisis struck them in 2018.
The NBFCs are gripped by high non-performing assets as infrastructure developers that they had lent to have failed to pay back. This has resulted in severe liquidity crunch in the market, leaving banks in bit of a sweet spot and helping them keep the rates high, according to some market experts.
The RBI rate cut came after the central bank’s Monetary Policy Committee (MPC) concluded its second bi-monthly monetary policy review for 2019-20.
Headline retail inflation inched up by a mere 6 bps in April to 2.92%. While this was the highest inflation print in half a year, it was the ninth consecutive month in which the retail inflation, as reflected by the Consumer Price Index, had come in below the RBI's medium-term target of 4%.
While inflation has given no worries to policymakers, the same can’t be said about the economic growth.
As per figures released Friday by the Central Statistics Office (CSO), GDP growth rate declined for the fourth consecutive quarter in Jan-Mar to come in at a 20-quarter low of 5.8%. The growth rate for the last financial year (2018-19) — 6.8% — was also a five-year low, coming in below the CSO’s second advance estimate of 7%.
These decisions are in line with the objective of achieving the RBI’s medium-term target for CPI inflation of 4% within a band of +/- 2 per cent, while supporting growth.
The fiscal deficit for the year came at 3.39%, pretty much in line with the targeted 3.4%. But this happened on the back of a cut in government expenditure which was ₹23.11 lakh crore as against the revised target of ₹24.57 lakh crore. The government’s target for the fiscal deficit is unchanged from last year’s.