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Business Economy 31 Mar 2020 RBI likely to cut in ...

RBI likely to cut interest rates by 100 bps in FY21: Fitch Solutions

PTI
Published Mar 31, 2020, 4:21 pm IST
Updated Mar 31, 2020, 4:22 pm IST
Fitch Solutions said consumer price inflation returning back to the RBI's 2-4 per cent target range will permit further monetary easing
Representative Image (PTI)
 Representative Image (PTI)

New Delhi: The RBI is likely to cut benchmark interest rate by another 100 bps in 2020-21 fiscal and continue to employ all policy tools at its disposal to support growth and financial stability to contain the impact of Covid-19 pandemic on the economy, Fith Solutions said Tuesday.

The Reserve Bank of India (RBI) cut benchmark repurchase (repo) rate by 75 basis points and its reverse repurchase rate by 90 basis points at an emergency meeting on March 27, bringing the rates to 4.40 per cent and 4.00 per cent, respectively, from 5.15 per cent and 4.90 per cent, previously.

 

In an outlook for India's interest rates, Fitch Solutions said an easing of inflation back within the RBI's 2-6 per cent target range will provide room for the RBI to ease monetary policy further over the course of the year to support the economy.

"We at Fitch Solutions expect the central bank to cut its policy rates by another 100 bps by end-FY2020/21 (April-March) as well as continue employing all policy tools at its disposal to support growth and financial stability as the economy gets severely hit by the Covid-19 pandemic," it said.

Additionally, it expects a sharp increase in government borrowing over the coming months to tighten credit conditions, this should see the RBI step in to lower rates through further cuts to its benchmark rates and increase its government bond purchases through open market repo operations.

The government's Rs 1.7 lakh crore fiscal stimulus announced on March 26 accounts for 0.7 per cent of GDP, which Fitch said was "grossly inadequate" given the strong headwinds the Indian economy will face.

"This is likely to see the RBI step up their government bond purchases through open market operations and also lower their benchmark interest rates to signal market interest rates lower to ease credit conditions," it added.

Fitch Solutions said consumer price inflation returning back to the RBI's 2-4 per cent target range will permit further monetary easing.

Headline inflation was last recorded to have eased slightly to 6.6 per cent in February, from 7.6 per cent in January.

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Location: India, Delhi, New Delhi




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