Skip to main content

RBI’s decision to cut repo rate

RBI decides to cut Repo Rate by 25 basis point :


It has become a hot topic of RBI cutting repo rate, so in this article we will try to examine this issue from various possible dimensions. Before we proceed lets define repo rate; In laymen term it’s a rate at which RBI lends money to bank for short term borrowing. I used the term laymen because actually RBI signs repurchase agreement with the banks and both the statement are technically same with slight difference.
From definition itself it’s clear that a cut in repo rate could imply:
1) Economy is growing much below its speculated potential.
2) Low inflation

New governor of RBI, Shaktikant Das, has many time in his speech made it clear that there is no gap in actual and speculated growth of economy. In another words, Indian economy is growing at it’s potential.

Regarding inflation, RBI has been instructed to maintain inflation rate of between 2 to 6 % with 4% as mean. At present CPI inflation (Consumer Price Index) is 2.05 % that is at lower edge which provides enough hint to us for RBI’s move.

Question: Why RBI decrease only 25 basis point in repo rate? In India monetary policy doesn’t percolates easily to the bottom of monetary chain, which suggests RBI should have nudged a little bit more.
Answer:
Economic Aspect:
Although Inflation is low, but the core inflation of our economy is still extremely high. And it is the core inflation that affects the common people the most. So dovish approach by RBI on Repo rate could produce adverse effect on core inflation.
Political Aspect:
Government’s populist expenditure that also is such proximity to general election requires a huge amount of internal borrowing. RBI decreasing its repo rate will for sure benefit government to lower its financial stress.
Conclusion:
No matter weather this move of RBI was politically motivated or not, this move was bound to happen and should be welcomed without any politicization. If RBI was only to appease government it would have lowered repo rate by a larger basis point as RBI is at the lower limit of its target.
We hope that Public sector bank, because of its moral obligation will lower lending rate with immediate effect which will impact market competition leading to overall reduction in lending rate by banks. This may take around 2-3 month but will definitely boost the slouching economy.


Comments

Post a Comment

Please provided your valuable comment on:

Aryan133aryan@gmail.com

Popular posts from this blog

Why do we use second or first gear while driving up a hillock or ghat section not 3 rd or 4th gear which is supposed to be faster?

it is clear that for driving up a hillock we need to have high torque , but the question is why this high torque is achieved at low rpm so first analyse the graph of torque to speed: it is clear form the above graph that torque is low at very low and very high speed so why it happens. it happens due to the valve timing as valve are coupled with the crank rotation so at low speed it remains open for a long time which creates losses during compression as a result of which less torque is generated on the other hand if the speed is high enough then valve opens for very less time as a result of which less fuel burns and less power is generated producing less torque. now another logic which works along is when you change gear piston reciprocates with the same speed it's just the power which is transmitted by the gear from engine to wheel which controls  every things. suppose engine generated power P=torque * rpm so, if arrangement of gear is such that it delivers less speed then d...
Read more
Breaking Myth of Petrol Debt: It has been vociferously stated by ruling dispensation that they are paying petrol debt taken by previous government.                        In this article we will be exploring two things: 1)       Whether debt paying story is true or not. 2)       Can this scenario   of paying huge petroleum borrowing   debt   of one government by other is possible or not 1)Paying Debt: Link to below image: https://www.indiabudget.gov.in/budget2014-2015/ub2014-15/rec/annex6e.pdf This data has been taken from government of India directly(As you can see in the URL). It shows that loan taken by the previous government(UPA) being maturing in NDA’s regime(2014-2019) is   1750+1750 crore rupee that is 3500 crore rupee, which is roughly equal to the cost of making “Statue Of UNITY...
Post a Comment
Read more

USA violating international cyber Law

Any law not only cyber security, related should not be violated for any purpose, although we can change the rule following the proper guide lines enshrined within the law. The main reason to this argument is simple, as any law gains its strength till it is followed once violated irrespective of the reason weakens its sole purpose. Now in today’s digital world information is the most precious thing we have to keep as a individual or as a nation. Violating cyber laws creates a big dent on our future’s security as no one knows the value of information which one thinks to be null today, in future. Violating cyber laws by USA can lead to big brother syndrome for rest of the country who are not that technically advanced in digital arena. And it will eventually lead to mistrust impacting international ties which may in extreme scenario result in conservative approach by various nation in economic world , mostly by the countries having trade deficit with USA. This segregation of ec...
Post a Comment
Read more