Home / News / India /  Economists call for sharper rate cut by RBI to boost consumption

New Delhi: Economists at a forum discussion on monetary policy urged the Reserve Bank of India (RBI) to cut interest rates by at least 50 basis points in its policy review on 7 August to boost consumption demand in the decelerating economy.

Charan Singh, CEO and Director, EGROW Foundation said for real transmission of rate cut, RBI needs to cut policy rates by 50 bps if not 100 bps. “This will lead to substantive interest rate cut by commercial banks," he added.

Surjit Bhalla, former member of the PMEAC also supported 100 bps rate cut by RBI.

Singh said government also needs to step in through an accommodative fiscal policy between now and March to boost consumption demand.

The discussion was jointly organized by EGROW foundation and industry lobby group ASSOCHAM.

The RBI cut policy rates for the third consecutive time in June by a cumulative 75 basis points and is expected to cut rates yet again this month, given the benign inflation trajectory. The US Fed cutting policy rates for the first time since 2008 by 25 basis point is likely to put the onus on the RBI for further monetary easing.

Supporting further monetary easing, Ashima Goyal, member of the Prime minister’s economic advisory council said government is not in a position to provide a fiscal stimulus because of the restraints put by the FRBM act. “India’s central bank has been reluctant to bring interest rates down drastically because of the lessons from the 2008 financial crisis. But today inflation is low and real interest rate is very high," she added.

Indranil Sengupta, chief economist at Bank of America Merrill Lynch said he expects the RBI to reduce policy rates by 50 bps by March, 2020.

Upasana Bhardwaj, senior economist at Kotak Mahindra Bank said consumption needs to be boosted as investment is not to revive anytime soon.

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