RBI—Big news for common people. RBI may announce a 25 basis point cut in the repo rate in the Monetary Policy Committee (MPC) meeting to be held between August 5 and 7. SBI has made this estimate in a report. The report says that another rate cut in August may bring “early Diwali.” This will boost credit growth, especially during the festive season. The report cited data to say that any repo rate cut before Diwali leads to higher credit growth.
For example, the repo rate was cut by 25 basis points in August 2017. This resulted in additional credit growth of Rs 1,956 billion by the end of Diwali. Personal loans accounted for nearly 30 percent of this. The SBI report claims that inflation is within limits. The report also stressed that inflation has been within the RBI’s target range for several months. In such a situation, maintaining a restrictive policy could lead to production losses.
Monetary policy takes time to formulate. If rate cuts are delayed until inflation has fallen further or growth has slowed more markedly, it could cause long-term damage to the economy. So far this year, there has been a cut of 100 basis points. RBI has cut the repo rate by one percent, or 100 basis points, so far this year. Currently, the repo rate is 5.5 percent.