Connect with us

Hi, what are you looking for?


RBI rate cut unlikely to stimulate growth: Ind-Ra

Mumbai: India Ratings and Research (Ind-Ra) said on Wednesda..

Mumbai: India Ratings and Research (Ind-Ra) said on Wednesday that an interest rate cut by the Reserve Bank of India (RBI), which is almost certain in the second bi-monthly monetary policy statement for 2019-20, is unlikely to stimulate demand in the near-term due to absence of quick resonance in financial market.

"Despite the RBI cutting policy rate by 50 basis points so far in 2019, banks have not adjusted their lending and deposit rate accordingly," it said in a statement. "On the contrary, a number of banks have raised their deposit rates to mobilise funds."

At the core of this mismatch between the RBI's action and the banks' inability to pass on the benefit to borrowers is the slowdown in household savings, said Ind-Ra.

Increased government borrowing and elevated small savings rate have rendered deposit and investment mobilisation by banks and non-banking finance companies expensive.

Also, India's consumption demand is still not a pronounced credit-fuelled or leveraged demand. Outstanding personal loan (excluding housing loan) and private final consumption expenditure ratio was 35.7 per cent in the fourth quarter of fiscal year-end 19 (28.2 per cent at first quarter fiscal year-end 12).

However, Ind-Ra believes that more than the rate cut, it is the transmission of rate cut into the economy that has emerged as a bigger challenge.

"It is well known that the impact of the monetary policy on the Indian economy is felt with a significant lag, but the situation at the current juncture has become further complicated due to the ongoing crisis in both — the banking and the shadow banking sectors."

While banks are struggling with high non-performing assets, non-banking finance companies are struggling with solvency issues leading to a credit freeze.

Read More – Source

ET Markets