RBI: Relief possible in December from expensive loans, pressure on RBI increased due to decline in GDP growth rate

New Delhi| The huge decline in GDP growth rate in the second quarter has increased the pressure on RBI to reduce the rates. Economists believe that instead of controlling inflation, the emphasis should be on boosting the economy. In such a situation, the Monetary Policy Committee of RBI may decide to cut rates in December. The decision of the meeting will be announced on 6 December.

Economist Teresa’s argument

More recession than expected could change the monetary policy story, said Teresa John, economist at Nirmal Bang Institutional Equities. There is now a greater possibility of a rate cut in December. IDFC First Bank economist Gaura Sen Gupta said the rate cut cycle may start from December. It is not decided how much the rate will be reduced, but policy makers may have to reduce the cash reserve ratio (CRR) of banks. Or some other type of liquidity measures may be activated to help increase the lending capacity of banks. CRR is the rate at which banks hold some part of the total deposits with RBI. Lakshmi Iyer of Kotak Alternate Asset says now is the opportunity to reduce rates. However, the chances are less because the prices of food items are still at high levels.

The strength of the dollar also has an impact

UTI’s equity fund manager Ajay Tyagi said that the dollar is continuously strengthening. To reduce its pressure on the rupee, RBI can take any decision only after the policy rates meeting of the US Central Bank to be held in December. According to a top official of a leading bank, the rates are very high. Its direct impact is also visible on debt growth. In such a situation, RBI should reduce the rates.

According to analysts, it is not right to sacrifice development in order to control inflation. Barring the rate of 6.21 per cent of retail inflation in October, inflation has been less than 6 per cent in the upper echelon of RBI for most of the time. Still, RBI has kept the rates unchanged.

Finance Minister and Goyal also advised to reduce the rate

The government department is already troubled by the high interest rate on loans. In November, Finance Minister Nirmala Sitharaman and Union Minister Piyush Goyal advised banks to reduce high rates in two programs. Sitharaman said in the SBI program itself, interest rates on loans are high. This should be reduced. Goyal said, there is no argument to link high inflation rates with debt rates. This is a wrong theory. For all these reasons and after the warnings of the ministers, it is expected that the rates can be reduced this time.

Along with government departments, banking officials are also unanimous on this. RBI is also in shock at this time because its expectation was seven percent of the GDP growth rate. But the figure which came in at 5.4 per cent is more than two per cent lower than that.

Huge decline in private consumption expenditure

Spending on private consumption declined from 7.4% in the first quarter to 6% in the second quarter. Especially in urban areas, where households have faced pressure due to rising borrowing costs and high inflation. Increased food prices have particularly hurt low-income groups in both rural and urban areas.