RBI Anticipated to Reduce Repo Rate by 50 Basis Points to Stimulate Economic Growth: ASSOCHAM

Synopsis

The Reserve Bank of India (RBI) is likely to reduce the repo rate by 50 basis points to stimulate economic growth, according to ASSOCHAM. This move is anticipated to enhance borrowing and support demand amid ongoing economic recovery efforts following the Covid-19 pandemic.

Key Takeaways

The RBI is predicted to cut the repo rate by 50 basis points.
ASSOCHAM emphasizes the need for increased demand and investment.
A lower repo rate could stimulate consumption and fiscal discipline.
Positive signs are emerging in food inflation and Rabi crop expectations.
Support for exporters is crucial amidst global economic challenges.

New Delhi, Feb 6 (NationPress) The Reserve Bank of India (RBI) is projected to decrease the benchmark policy repo rate, currently at 6.50 percent, by a minimum of 50 basis points to foster economic expansion, as stated by a leading industry organization on Thursday.

In an effort to assist the economy in overcoming challenges brought about by the Covid-19 pandemic, the central bank last lowered the repo rate by 40 basis points to 4 percent in May 2020.

Following discussions with key stakeholders, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) asserts that the Indian economy requires an immediate boost in demand and investment, achievable through a reduction in borrowing costs.

According to ASSOCHAM, "With Finance Minister Nirmala Sitharaman providing generous income tax relief to the middle class, the subsequent stimulus is anticipated from the RBI."

A rate reduction could enhance liquidity within the banking system and invigorate consumption and fiscal discipline. The central bank’s MPC adopted a neutral stance in October of the previous year.

The chamber’s General Secretary Manish Singhal expressed confidence that the MPC will act, anticipating a demand-driven economic recovery in the short to medium term.

He noted that food inflation is stabilizing and there are positive expectations for the Rabi crop.

Singhal asserted, "By March-April, food prices should further stabilize, providing leeway for a reversal in the rate cut cycle."

The organization emphasized the need for growth momentum in light of global challenges posed by a tariff war among major world economies.

Singhal remarked, "Exporters require robust support in this challenging landscape."

The chamber commended the RBI’s recent initiatives, such as the Rs 10,000 crore liquidity infusion by the National Housing Bank into housing finance firms.