RBI Policy Moves Set to Bolster Indian Economy Amid Global Slowdown: CII
The accommodative monetary policy of the Reserve Bank of India (RBI) and the government's growth-oriented fiscal policy will assist in driving domestic growth during a time of global economic crisis, the Confederation of Indian Industry (CII) stated.
Describing the decision of the central bank to carry on with the rate easing cycle by cutting the repo rate by 25 basis points to 6.0 per cent as "timely and prudent," CII Director General Chandrajit Banerjee stated that the rate cut along with the change in monetary policy stance from 'neutral' to 'accommodative,' too, is a positive thing.
"This change, which CII has long advocated, firmly emphasises the Central Bank's pro-growth approach while maintaining vigilance regarding inflation outlook,” Banerjee said in a statement.
The RBI’s rate cut, and stance change, reflect concerns about the impact of slower global growth on domestic economic growth and a relatively benign outlook for domestic inflation.
Also, with actual interest rates still remaining high at 2.6 per cent following the February rate cut, there was a pressing need for the rates to decrease further to increase investment demand, according to the top industry chamber.
The advantage of this rate reduction will be transmitted to the consumers on a timely basis, which will be important to stimulate consumption. Reduced borrowing costs can also help housing affordability.
RBI Governor Sanjay Malhotra stated that the move to reduce the repo rate has been taken by the Monetary Policy Committee (MPC) unanimously with a view to considering the macroeconomic and financial situation and outlook.
The RBI Governor also mentioned that although the inflation has eased in the Indian economy, the central bank would stay alert as there are global threats from the rise in US tariffs. According to him, the RBI will ensure that the banking system remains liquid enough.
This is the second straight 25 basis reduction in the repo rate after having been cut last February for the first time in May 2020. With a lower policy rate, interest rate on loans from banks drops which makes consumption and borrowing cheap for consumers as well as businesspersons leading to increased consumption and investment in the economy resulting in increased growth.
