New Delhi, Dec 5 (SocialNews.XYZ) The Finance Ministry late on Thursday said that it welcomes the Reserve Bank's accommodative stance towards further rates in the future, while remaining silent on the central bank's decision to keep the repo rate unchanged.

Defying expectations, the RBI earlier in the day announced to keep the repo rate unchanged at 5.15 per cent after five consecutive rate cuts in its previous monetary policy announcements.

In a tweet, the Finance Ministry also said that it noted the downward revision of the GDP growth rate for financial year 2019-20 to 5 per cent by the central bank's Monetary Policy Committee.

"We have noted the revision in the #GDP growth projection by #MPC from 6.1 percent to 5.0 percent in 2019-20. We welcome the unchanged accommodative stance of RBI towards future cuts in the repo rate," it said in the tweet.

RBI Governor Shaktikanta Das, while addressing the media after the announcement, attributed the decision to keep the repo rate unchanged to the expection of high inflation in the near term.

A rate cut was highly anticipated given the slowdown in the economy and the growth rate for the July-September quarter falling to a six year low of 4.5 per cent.

Das said that the previous rate cuts by RBI and the the stimulus measures announced by the government should be given some time to reflect on the economy.

Source: IANS

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New Delhi, Dec 5 (SocialNews.XYZ) With the Reserve Bank's Monetary Policy Committee (MPC) keeping the repo rate unchanged, real estate developers have expressed their discontent over the status quo, saying that further rate cuts are required for the sector to revive.

Defying market and industry expectations, the RBI's MPC on Thursday kept the repo, or its short-term lending rate, unchanged at 5.15 per cent.

Industry experts however, say that a rate cut was needed at this point of time as the economy is going through a slow growth phase and the consumer sentiment is subdued.

"By maintaining the status quo, the RBI has given some kind of surprise after a long time. Unfortunately, it is contrary to our expectation. The whole industry was assuming a 25 bps (basis points) cut. But it seems the inflationary expectation has outweighed growth projections," said Amit Modi, Director, ABA Corp.

"In the last few months, government has announced certain measures to revive demand particularly for real estate sectors like constitution of realty AIF (alternative investment fund), lowering GST on affordable housing, among others. It remains to be seen what additional measures it takes to revive the economy," he added.

Sharan Bansal, Joint Secretary, CREDAI Ghaziabad said that the real estate sector is "disheartened" by the status quo maintained by RBI.

He observed that the real estate being an interest sensitive sector would have benefited from any cut in policy rates, provided it is passed down to the consumer.

"But, to our surprise, RBI has maintained status quo mainly to check rising CPI (retail)inflation. The monetary stance will adversely impact chances of revival of the demand in the immediate period and a lot would depend on government action going forward," he said.

Citing the slowdown in the economy and the consequent impact on real estate, Sakshee Katiyal, CEO of Home and Soul, said that the RBI should have gone ahead with another rate cut.

"The downturn has hit real-estate industry the maximum, the buyers are hard to find for the developers. The economic activity in the real-estate has been the lowest in the last quarter, inventory has hardly moved. RBI needs to supplement the government initiatives to boost the sector. Consumers are expecting cheaper home loans which will help boost the sector," she said.

Niranjan Hiranandani, President, National Real Estate Development Council (NAREDCO) said: "The decision to wait and watch the outplay of previous cuts will go against the current sentiments. The markets overall are disappointed. The benefit from the previous rate cuts are yet to play out completely and the real estate industry is still reeling under the liquidity crisis"

Market players, however, expect that the banks would now transmit the cummulative 135 basis points announced by the RBI after the previous five MPC meets. The transmission of the rate cut to retail loans has been slow and only 44 bps has been transmitted so far, RBI Governor Shaktikanta Das said on Thursday.

Ashok Mohanani, Chairman of EKTA World and Vice President, NAREDCO Maharashtra said: "Keeping in mind the 135 bps change given over the year and with the revival of the industry we are still looking at a room for positive transmission for the industry."

Amit Jain, CMD of Mumbai-based real estate firm Arkade, said that even with the unchanged repo rate, the sector now has the support of liquidity and the government initiatives to revive the demand from home buyers.

"However, the wheels of change will only churn some results when the benefits of this revision are passed on to the consumer by the banks and inflation is kept under check. We hope this decision will be assertive and reflect from the first quarter of 2020," Jain said.

Source: IANS

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New Delhi, Dec 5 (SocialNews.XYZ) The Reserve Bank of India on Thursday noted that in the credit market, the 1-year median marginal cost of funds-based lending rate (MCLR) has declined by 49 basis points and the weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks declined by 44 basis points as against the cumulative reduction in the policy repo rate by 135 bps during February-October 2019.

Credit market refers to the market through which companies and governments issue debt to investors, such as investment-grade bonds, junk bonds, and short-term commercial paper.

The credit market in India plays an important role in meeting the financing needs of various segments of the economy. This market is regulated by the RBI, SEBI, The Securities Contracts Regulation Act (SCRA) and Ministry of company affairs (MCA).

The central bank did acknowledge that transmission of its rate cut to the borrowers has been happening. The RBI said most banks had linked their lending rates to the policy repo rate of the Reserve Bank.

"The median term deposit rate has declined by 47 bps during February-November 2019. The weighted average term deposit rate declined by 9 bps in October as against a decline of just 7 bps in eight months during February-September. This augurs well for transmission to lending rates, going forward," it added.

Monetary transmission has been full and reasonably swift across various money market segments and the private corporate bond market. As against the cumulative reduction in the policy repo rate by 135 bps during February-October 2019, transmission to various money market and corporate debt market segments ranged from 137 bps (overnight call money market) to 218 bps (3-month CPs of non-banking finance companies).

Transmission to the government securities market has been 113 bps for yields on 5-year government securities and 89 bps for yields on 10-year government securities.

In the credit market, the 1-year median marginal cost of funds-based lending rate (MCLR) has declined by 49 basis points. The weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks declined by 44 basis points.

Going forward, transmission is expected to improve with the introduction of the external benchmark system, as most banks have linked their lending rates to the policy repo rate of the Reserve Bank. Already, the weighted average term deposit rate has fallen by 16 bps.

Overall liquidity in the system remains in sizable surplus. This augurs well for transmission to lending rates, going forward, RBI Governor Shaktikanta Das said on Thursday during Monetary Policy announcements.

All leading banks including market leader SBI have followed repo rate as external benchmark rates.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) The surprise decision by the Reserve Bank of India (RBI) to take a "temporary pause" in reducing key lending rates and its revising the country's projected GDP growth rate to a seven-year-low of 5 per cent caught the Indian equity markets off-guard on Thursday.

Consequently, both the S&P BSE Sensex and the Nifty50 on the National Stock Exchange slumped into negative territory.

On Thursday, the Sensex closed at 40,779.59, lower by 70.70 points, or 0.17 per cent, from its previous close of 40,850.29.

It had opened at 40,988.14 and touched an intra-day high of 41,002.41 and a low of 40,720.17.

Similarly, the NSE Nifty50 closed in the negative at 12,018.40, lower by 24.80 points or 0.21 per cent, than its previous close.

Among the sectoral indices, most of the sectors ended in the red with metals being the worst performer, followed by banks and auto, whereas, media was the biggest gainer, followed by IT and capital goods.

In terms of broader markets indices like the NSE Mid-cap closed on a slightly negative note, while the NSE Small-cap made a small gain.

Nonetheless, the market breadth ended on a negative note on both the BSE and NSE.

"Equity markets ended lower in a volatile session after RBI in a surprise move kept policy rates unchanged while the market was discounting a 25 basis points rate cut," said Motilal Oswal Financial Services' Retail Research Head Siddhartha Khemka.

"The RBI kept its key lending rate unchanged and sharply revised its GDP forecast to 5 per cent - weakest growth in seven years," he added.

According to HDFC Securities' Retail Research Head Deepak Jasani: "Markets ended with minor loss on Thursday after witnessing some intraday volatility during the day. Markets absorbed a surprise pause in rate cut by the RBI."

"Volumes were unusually low for a day when the credit policy was announced and weekly F&O expiry was scheduled," he said.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) Raising concerns of higher inflation in the near term, Reserve Bank Governor Shaktikanta Das on Thursday observed that recent announcements by the telecom operators to raise tariffs will add to the inflation rate in the country.

In a surprise move, the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 5.15 per cent, citing high rate of inflation and a likely further increase in food inflation.

Addressing the media post the policy announcement, Das said: "With regard to the core inflation, it is expected to remain in the curent zone as it is, below 4 per cent... again some evidence shows that certain decisions relating to telecom and others, which may play out. They may have some impact on the core inflation. It is expected that inflation will come to about 3.8 per cent in the Q2 of next year."

"There is a case for looking through the current spike in headline inflation, which is mainly due to the spike in food inflation. Our calculation shows that during Q4 (January-March), food inflation in particular is likely to remain very high and its moderation in the coming months is dependent on several factors."

All the three private telecom players Vodafone Idea, Bharti Airtel and Jio has raised their taiff plans pre-paid tariff plans and the increase has been as high as 40-50 per cent.

The hike comes after three years and amid the acute financial stress the sector is going through after a Supreme Court ruling on adjusted gross revenue.

The revised rates of Vodafone Idea and Airtel came into effect on Tuesday and those of Jio would be effective on Friday.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) To develop secondary market for corporate loans, the Reserve Bank of India will facilitate the setting up of a self-regulatory body (SRB) for such transactions.

"As recommended by the Task Force, the Reserve Bank will facilitate the setting up of a self-regulatory body as a first step towards the development of the secondary market for corporate loans," the apex bank said in a statement on developmental and regulatory policies.

According to the statement, the SRB will be responsible for "standardising documents, covenants and practices related to secondary market transactions in corporate loans".

In India's context, corporate loans both standard and Non-Performing Assets (NPAs) have been transferred from banks to other lenders and Asset Reconstruction Companies (ARCs).

However, this inter-bank bilateral transactions of loan accounts have been relatively infrequent.

As regards the securitisation market, it has mostly evolved in the retail segment and there has been no major breakthrough in the corporate portfolio.

To overcome these hurdles, the RBI constituted a task force to examine the development of secondary market for corporate loans and make recommendations to facilitate rapid development of this market.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) As the Reserve Bank of India (RBI) in a surprise move kept the repo rate unchanged on Thursday, causing the markets to go jittery, RBI Governor Shaktikanta Das defended the decision by recalling the "primary objective" of the central bank, which is inflation targeting and price control.

This comes as a complete change of mind of the Governor along with most of the other members of the Monetary Policy Committee (MPC).

Defying the expectations of the sixth consecutive rate cut, the RBI on Thursday announced that the repo rate would be kept unchanged at 5.15 per cent, which made everyone curious about the reason behind such an unexpected decision.

Speaking to the media after the announcement, Das said that the headline inflation is currently high, largely due to high food inflation. He further said that food inflation will remain "very high" during January-March, which prompted the RBI to hit the pause button on rate cuts.

"There is a case for looking through the current spike in headline inflation, which is mainly due to the spike in food inflation. Our calculation shows that during Q4 (January-March), food inflation in particular is likely to remain very high and its moderation in the coming months is dependent on several factors," Das said.

Regarding core inflation, he said that it is likely to remain below 4 per cent, while some factors, including rise in telecom tariffs, among others, are also likely to have an impact on it.

Das noted that there are several uncertainties in the inflation scenario, which prompted the MPC to not go ahead with yet another rate cut.

"There are several uncertainties and the MPC would like to have better clarity with regard to that. And let us also keep in mind the fact that inflation targeting and price control are the prime objectives of the Reserve Bank Monetary Policy as prescribed in the RBI Act," he said.

Das also pointed out that despite the cumulative 135 basis points (bps) rate cut in the last five MPC meetings, the transmission in retail loans has only been 44 bps, adding that some more time needs to be given for rate cuts along with the recent stimulus measures announced by the Centre to play out.

"The Reserve Bank on its part has reduced the policy rates consistently since February. The liquidity has been in surplus mode since June. The full impact of our policy rate cut is also playing out. Till now it is 44 bps with regard to new loans.

"We should give some time with regard to the rate action taken by the RBI so far. We should allow some more time to get it more and more reflected in the (retail) lending rates," Das said.

The RBI Governor also said that the MPC decided to wait for the effects of the Centre's stimulus measures and the previous consecutive rate cuts to actually translate on the ground.

"Therefore, the MPC decided that at this juncture its better to take a temporary pause," Das said.

He further said that RBI is also required to keep in mind the objective of growth and "that has been given due weightage and the MPC has given a very clear unambiguous forward guidance that there is space for further rate cut and the Reserve Bank will act if the evolving situation so warrants."

Source: IANS

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New Delhi, Dec 5 (SocialNews.XYZ) In apparent pessimism following declining GDP and job uncertainty, a Reserve Bank of India (RBI) survey has found Indian consumers cutting down on their discretionary spends. Not only consumers, even manufacturers remain anxious about the future.

As per the RBI's consumer confidence survey, people's spending on non-essential items of consumption has shrunk compared to a year ago even as they expect their overall spending to remain unchanged largely due to an increase in prices.

"Based on the Reserve Bank's consumer confidence survey, spending on non-essential items of consumption has shrunk compared to a year ago; however, consumers expect their overall spending to remain unchanged going forward largely due to an increase in prices," the central bank said in its monetary policy statement issued on Thursday.

Manufacturing firms polled in the industrial outlook survey of the RBI expect weak demand conditions and reduced input price pressures in the third and fourth quarter of the current fiscal.

Further, they expect further weakening of pricing power on muted output prices.

The RBI survey in November found households expecting prices to rise by 120 basis points over the 3-month ahead horizon and 180 basis points over the next one year.

The misery of slowdown-hit households does not seem to end any time soon as factory output has also been in downward spiral. The capacity utlisation declined to 68.9 per cent in Q2 of 2019-20 from 73.6 per cent in Q1 in the early results of the RBI's order books, inventories and capacity utilisation survey (OBICUS).

Lower capacity utlisation means fewer fresh investments and hence less job opportunities in the market.

With the second quarter GDP slipping to six-year low of 4.5 per cent and very few macro indicators signaling a fast recovery, the RBI on Thursday cut GDP growth forecast for the current fiscal to 5 per cent.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) Upsurge in food prices is expected to keep retail inflation rate rising in the near-term, the Reserve Bank of India's Monetary Policy Committee said on Thursday.

However, the MPC noted that inflation is likely to moderate below target by Q2 of 2020-21.

The RBI's inflation expectations assume significance as the apex bank on Thursday decided to take a 'temporary pause' in reducing key lending rates to keep retail prices in check.

"In the judgement of the MPC, inflation is rising in the near-term, but it is likely to moderate below target by Q2:2020-21," the Fifth Bi-monthly Monetary Policy Statement, 2019-20 said.

"It is, therefore, prudent to carefully monitor incoming data to gain clarity on the inflation outlook."

According to the MPC, actual inflation outcome for Q2 evolved broadly in line with projections -- averaging 3.5 per cent, but the inflation print for October was much higher than expected.

In November, macro-economic data showed that a substantial rise in food prices had lifted India's October retail inflation to 4.62 per cent from 3.99 per cent in September.

The macro-data indicated that retail inflation level had breached the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent. The target is set within a band of +/- 2 per cent.

"Going forward, the inflation outlook is likely to be influenced by several factors... the upsurge in prices of vegetables is likely to continue in immediate months; however, a pick-up in arrivals from the late kharif season along with measures taken by the Government to augment supply through imports should help soften vegetables prices by early February 2020," the statement said.

It further noted that incipient price pressures seen in other food items such as milk, pulses, and sugar are likely to be sustained, with implications for the trajectory of food inflation.

"Taking into consideration these factors, the CPI inflation projection is revised upwards to 5.1-4.7 per cent for H2 (second half) of 2019-20 and 4.0-3.8 per cent for H1 of 2020-21, with risks broadly balanced," the statement said.

On Thursday, the RBI in a surprise move took a 'temporary pause' in reducing key lending rates to keep the retail inflation in check.

Accordingly, the RBI's monetary policy committee (MPC) in its fifth review of the current fiscal kept the repo, or short term lending rate for commercial banks at 5.15 per cent.

Consequently, the reverse repo rate was maintained at 4.90 per cent, and the marginal standing facility (MSF) rate and the bank rate remained at 5.40 per cent.

The Reserve Bank had reduced key lending rates during the last five policy reviews to reverse the current consumption slowdown that has plagued the country's economy, thus surprising India Inc and many economists.

However, the Reserve Bank's MPC continued its accommodative stance.

Source: IANS

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New Delhi, Dec 5 (SocialNews.XYZ) Capacity utilisation at factories has further slipped raising fresh concerns over private investment and worries for the Modi government which has been facing opposition heat on economic issues.

As per Reserve Bank of India (RBI), capacity utilisation declined to 68.9 per cent in April-September quarter of current fiscal from 73.6 per cent in the previous quarter.

The estimate is based on RBI's order books, inventories and capacity utilisation survey (OBICUS).

The lower capacity utilisation means factories firing less and fewer job opportunities.

"Who would want to make fresh investments if present capacity is not utilised? So, it will further reduce fresh investment and correspondingly employment growth would also be affected," said R. Nagraj, professor of economics at Indira Gandhi Institute of Development Research.

In its monetary policy statement, the RBI said that gross value added (GVA) growth decelerated to 4.3 per cent in the second quarter of FY20 as it was pulled down by a contraction in manufacturing.

"The slowdown in manufacturing activity was also reflected in a decline in capacity utilisation (CU) to 68.9 per cent in Q2:2019-20 from 73.6 per cent in Q1 in the early results of the Reserve Bank's order books, inventories and capacity utilisation survey (OBICUS)," it said.

The central bank further said that seasonally adjusted capacity utilisation also fell to 69.8 per cent from 74.6 per cent during the same period.

Growth in the services sector moderated, weighed down mainly by trade, hotels, transport, communication, broadcasting services and construction activity. However, growth in public administration, defence and other services accelerated in line with the surge in government final consumption expenditure.

"Agricultural GVA growth increased marginally, despite contraction in kharif foodgrains production in the first advance estimates," the RBI said.

With the second quarter GDP slipping to six-year low of 4.5 per cent and expected to remain muted, the RBI on Thursday cut GDP growth forecast for the current fiscal to 5 per cent.

In its October monetary policy, the RBI had estimated the GDP to grow at 6.1 per cent in financial year 2019-20.

In its sixth monetary policy in 2019, the RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.15 per cent. Consequently, the reverse repo rate under the LAF remains unchanged at 4.90 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 5.40 per cent.

Source: IANS

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New Delhi, Dec 5 (SocialNews.XYZ) With the second quarter GDP slipping to a six-year low of 4.5 per cent and expected to remain muted, the Reserve Bank of India (RBI) on Thursday cut GDP growth forecast for the current fiscal to 5 per cent.

In its October monetary policy, the RBI had estimated the GDP to grow at 6.1 per cent in financial year 2019-20.

The central bank said that the July-September GDP growth had turned out turned out to be significantly lower than projected and various high frequency indicators suggest that domestic and external demand conditions have remained weak.

"While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in revival of domestic demand, a further slowdown in global economic activity and geo-political tensions are downside risks," the RBI said in its monetary policy statement.

The RBI, however, sees a marginal pick up in business sentiments in the Q4 of the current fiscal.

"On the positive side, however, monetary policy easing since February 2019 and the measures initiated by the government over the last few months are expected to revive sentiment and spur domestic demand," the RBI said.

The Monetary Policy Committee (MPC) noted that economic activity has weakened further and the output gap remains negative.

"However, several measures already initiated by the government and the monetary easing undertaken by the Reserve Bank since February 2019 are gradually expected to further feed into the real economy," the RBI said.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) The Indian equity market witnessed a shock on Thursday afternoon as the Reserve Bank of India (RBI) kept the repo rate unchanged, and both the BSE Sensex and the Nifty50 on the National Stock Exchange slumped to the negative territory as soon as the announcement came.

At 12.13 p.m., the Sensex was trading at 40,815.15, lower by 35.14 points or 0.09 per cent from the previous close of 40,850.29.

It had opened at 40,988.14 and has so far touched an intra-day of 41,002.41 and a low of 40,730.58.

The NSE Nifty50 was trading at 12,031.95, lower by 11.25 points or 0.09 per cent from its previous close.

In a surprise move, the RBI left the repo rate unchanged at 5.15 per cent, against the market expectation of a rate cut. Further, the central bank also revised the FY 2019-20 growth rate downwards to 5 per cent from the previous estimate of 6.1 per cent.

Markets anticipated the RBI to go ahead with the sixth consecutive rate cut due to a slowing economy.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) When the RBI governor announces the decision of Monetary Policy Committee today all eyes would be on the quantum of policy rate cut. India's central bank is just 40 basis points away from bringing down the key lending rates near its historic low of 4.75 per cent (current repo rate at 5.15 per cent) reached in 2009 soon after the collapse of Lehman Brothers and the ensuing global financial crisis.

The factors that led to the global financial meltdown in 2008 and to slashing policy rates to record low, may well be different, but the December Monetary Policy Committee meeting will begin with the albatross around its neck, in the form of the GDP growth rate, which slipped to a six-year low for the September quarter.

"The current circumstances are difficult right now. We have an acute risk aversion in the system. At that time of the Lehman crisis, the external crises converted to domestic liquidity issue because of the capital flight. But at present, the liquidity squeeze is coming from the unresolved NBFC problems. The situation is similar and we need to keep working to fix it," Abheek Barua, Chief Economist, HDFC Bank told IANS.

"Apart from cutting rates we also need to focus on solutions like the Federal Reserve did in the wake of the Lehman crisis. I am in favour of some kind of troubled asset relief program or a government entity buying out some of the liquid asset ..a kind of fund flow to the NBFC sector directly from the central bank," Barua added.

Suvodeep Rakshit, Vice President & Sr. Economist, Kotak Institutional Equities said that there are some similarities between the current situation and the time of the 2008 financial crisis but most aspects are different. The current economic slowdown is structural in nature and given the extent of the slowdown, we see scope for 25-50 bps of rate cut over the December and February MPC meetings.

The central bank is widely expected to cut interest rates for the sixth straight time on December 5 despite a surprise spike in inflation, as the Reserve Bank of India (RBI) is likely to continue to focus on the sustained slowdown in India's economic activity.

Source: IANS

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New Delhi, Dec 5 (SocialNews.XYZ) Enhanced public spending for infrastructure creation and further dose of economic stimulus by the government would hold the key to accelerate India's GDP growth with further reduction in lending rates and better transmission adding to prop up the general mood and improve overall investment climate in the economy, economy watchers opined.

The suggested steps to infuse vitality into the economy assume significance as India's second quarter FY2019-20 GDP growth rate has fallen to six year low level of 4.5 per cent while inflation is inching up. Other high frequency economic indicators like IIP, core sector, auto sales also continue to paint a dismal picture.

The RBI's Monetary Policy Committee (MPC) will release its resolution on the monetary policy later on Thursday. It is widely expected to cut the key repo rate that should help in bring down the lending rates across the sector while lowering interest rate on home and auto loans.

But experts believe that rate cut is just one aspect and several other measures would be needed to change the mood in the economy. At present, India's economy faces a severe demand slowdown on account of high GST rates, farm distress, stagnant wages and liquidity constraints.

Consequently, all the major sector's including automobile, capital goods, banks, consumer durables, FMCG and real estate have been heavily battered.

In terms of production, the output of manufacturing, mining and electricity generation amongst others have plunged causing job losses.

"RBI may not be able to achieve the desired economic revival only by monetary policy tool. The Government may have to pitch in with further fiscal stimulus, even if it comes at the cost of breaching the budgeted fiscal target," Shishir Baijal - Chairman & Managing Director, Knight Frank India said.

Recently, Finance Minister Nirmala Sitharaman announced several measures to boost the economy, including mega bank merger, sops for the auto along with real estate sectors and reducing effective corporate tax rate to 25.17 per cent (inclusive of all cess and surcharges) from 30 per cent for all domestic companies.

"A counter-cyclical fiscal stance would help alleviate some of the growth pains, with the immediate multiplier effect being higher if its focused on the revenue spending," Edelweiss Securities' Economist Madhavi Arora told IANS.

"However, the extent of growth up-tick owing to higher fiscal spending will be contingent on the extent of deficit slippage."

According to Suman Chowdhury, President-Ratings, Acuit? Ratings and Research, public investment would be the key to a quick revival of the economy.

"The fiscal challenges notwithstanding which have further aggravated in a slowdown phase, the government should accelerate its investment plans particularly in the infrastructure sector," Chowdhury said.

"Private investment pick-up will happen only when there is a clear revival in the demand scenario brought about by a sustained step in public capital expenditure."

Nonetheless, the government's tight pursue strings might also hamper the extent to which it can lift growth via enhanced public spending. The fiscal deficit target for 2019-20 has been set at 3.3 per cent of the GDP.

However, persistent spending pressures and slower economic growth are likely to widen the deficit.

"With the government (Centre and States) deficit and borrowing itself running at 8-9 per cent, there is limited headroom from the financial savings of the financial sector," Brickwork Ratings' Chief Economic Advisor M. Govinda Rao, told IANS.

"It will become difficult to reduce the interest rates on corporate borrowings even when RBI reduces the policy rate, the transmission may not take place. It would be more appropriate to fast track government spending through disinvestment proceeds than through additional borrowing from the financial sector."

On lending rates, the Reserve Bank of India's MPC is expected to continue with the accommodative stance by reducing key lending rates during the upcoming monetary policy review slated in December.

In October, the RBI reduced its key lending rate for the fifth consecutive time to 5.15 per cent, the lowest in around a decade, to boost consumption and reverse the slowdown.

Source: IANS

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Mumbai, Dec 5 (SocialNews.XYZ) The Reserve Bank of India is expected to administer another booster dose of lending rate cut to break the slowdown induced downward growth spiral rather than change its stance to inflation targeting to control rising food prices, economists opined.

The RBI's Monetary Policy Committee (MPC) will release its resolution on the monetary policy later on Thursday.

Economists and industry experts, pointed out that despite a rise in retail food inflation, growth concerns will necessitate RBI to go in for another rate cut during the pan-ultimate monetary policy review for FY20.

"The spike in the CPI inflation in October 2019 has contrasted with the moderation in the GDP growth in Q2 FY2020, complicating the next policy decision," ICRA's Principal Economist Aditi Nayar said.

"In October 2019, the MPC had indicated that it would retain the stance as accommodative for as long as necessary to revive growth. Based on this, there appears to be a high likelihood of another repo rate in the December 2019 policy review, with the MPC likely to look through the vegetable price-led uptick in the CPI inflation."

Lately data showed that a substantial rise in food prices had lifted India's October retail inflation to 4.62 per cent from 3.99 per cent in September.

Significantly, the data indicated that retail inflation level has breached the medium-term target for Consumer Price Index (CPI) inflation of 4 per cent. The target is set within a band of +/- 2 per cent.

But, another macro-data point showed that consumption trend along with a massive contraction in manufacturing, agriculture and mining activities subdued India's GDP growth rate down to 4.5 per cent in the second quarter of 2019-20.

"We think the RBI will continue with an accommodative stance on monetary policy to boost the revival of domestic demand. Growth versus inflation - are the two big data trends that will guide the MPC when it delivers its stance. To keep a balance between growth and inflation, we believe that in the upcoming policy the committee will focus on reviving growth as their primary objective, while keeping a close eye on the inflation readings," Sidharth Rath, MD & CEO, SBM Bank India said.

Though experts are divided on the quantum of cut that MPC may adopt to maintain its support for growth, a range between 25 and 50 basis points cut in repo rate is being expected to bring down the cost of finance and give impetus to consumption growth.

"We expect more than 25 basis points cut in upcoming policy. This should take the repo rate down to at least 4.90 per cent. We think there is more steam in conventional rate cut cycle," Edelweiss Securities Lead Economist Madhavi Arora told IANS.

The bad news on the economic front has not only come from the latest GDP numbers, but earlier released performance of key core infrastructure sectors also showed that economic activity in the country has come to a standstill. The growth in industrial production has also been subdued for past few months.

"Given the increased concerns on growth with the Q2 GDP print at 4.5 per cent, we believe the accommodative policy will continue in the near term and MPC will actively consider a rate cut again," Acuit? Ratings and Research's Lead Economist Karan Mehrishi said.

"The rate cut can be between 25-50 basis points."

Monetary policy easing is expected to provide more elbow room to banks to reduce their lending rates and help both consumers and the industry to get cheaper finance. This is expected to fuel both investment and consumption, the two key elements needed for taking the economy back on growth path.

"The MPC Meeting this time is set against an interesting backdrop - rising CPI data and a falling GDP growth. Super impose easing interest rates across the globe, further aggravates the situation. However, the high real rates in India suggest a case for further easing given that CPI rise is largely food prices driven. This Tug of war, in our view, may pave way for an additional rate cut in the upcoming policy," Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company (KMAMC) said.

However, according to Brickwork Ratings' Chief Economic Advisor M.Govinda Rao: "This reduction will certainly not be sufficient to spur growth to the extent desired. First of all, given the low level of the household sector's financial savings, the transmission will be sticky."

"Besides, the hesitancy and the fear factor of the bankers to lend to the manufacturing sector have not been addressed yet."

Interestingly, a faster transmission of earlier policy easing by lenders is urgently required, as high interest rates and liquidity constraints have demoralised auto, home and capital goods buyers.

"Transmission of rate cuts still remains an issue as the positive effect of the five consecutive rate cuts is not visible in the economy," said Geojit Financial Services' Economist Deepthi Mary Mathew.

In October, the RBI's MPC stuck to its "accommodative stance" by reducing its key lending rate to 5.15 per cent, the lowest in around a decade. The record low repo was set at 4.75 per cent in April 2009 as a result of the global financial crisis.

"...the spike in inflation is mainly because of high food inflation, especially vegetable prices, which could be seasonal. Core inflation is low and is likely to remain muted given poor aggregate demand in the economy. In such a scenario, economic slowdown is likely to take centre stage and we expect RBI to cut policy interest rate by around 25 bps. With policy transmission by banks improving, credit cycle is likely to get some fillip," Shishir Baijal, Chairman & Managing Director, Knight Frank India said.

Lower interest rates is expected to give a boost to real estate sector that has been suffering from not just tight credit conditions but also poor consumer sentiments and purchasing power. Moreover, any further measure by RBI to ease credit availability for NBFC sector will also provide relief to the real estate sector, Baijal said.

The general sense is also that RBI may not be able to achieve the desired economic revival only by monetary policy tool. The Government may have to pitch in with further fiscal stimulus, even if it comes at the cost of breaching the budgeted fiscal target, experts opined.

Source: IANS

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