December 3, 2019
Monetary policy is a tool in the hands of the RBI to manage the policy interest rates which have a long bearing impact on the economy. Increase or decrease in policy rates depends on following :
If the RBI wants to increase liquidity in the market or otherwise .
If it wants to control inflation or wish an expansionary policy.
If it wants to encourage savings or discourage it.
If it wants to encourage borrowings by industrialists for capacity enhancements.
If it wants to encourage individuals to borrow and spend more on consumption.
Most analysts in market are expecting RBI to cut repo rate by 25 basis points. We at InvestmentMitra believe that market is yet to absorb the prevailing liquidity generated by rate cut of 135 basis points this year. Banks are yet to pass on the benefits of these cuts. Neither the industry is coming forward to take fresh loans as the current capacity utilization is below 73% with not so good growth in sales, nor the banks are willing to offer more credit due to increasing number of bad loans.
In recent past inflation have also inched up. Individuals are also not coming forward to spend money as they are worried since there is so much noise on unemployment and slowing economy. We believe that RBI should wait for some time now before going for rate cut.