The Reserve Bank may again cut interest rates, cutting 0.25%

New delhi date. 27 July 2020, Monday

The Reserve Bank of India may once again cut interest rates to save the struggling economy from the Corona crisis. According to a report, the RBI may cut the repo rate by 0.25 per cent during the next monetary policy review.

The three-day meeting of the Monetary Policy Committee (MPC), chaired by the RBI governor, will begin on August 4 and will be announced on August 6.

The Reserve Bank is constantly striving to limit the damage to the economy caused by the Covid-19 epidemic and the impact of the lockdown. Earlier, MPC meetings were held in March and May in which policy repo rates were cut by a total of 1.15 per cent.

Increase in retail inflation

The recent rise in prices of food items, especially meat, fish, cereals and pulses, led to a rise in consumer price index-based retail inflation to 6.09 per cent in June. The Reserve Bank itself has stated that the convenient level of inflation is only 4 per cent (which can be reduced by 2 per cent). This means that inflation has now reached beyond the Reserve Bank's convenience range.

What to expect

"We expect a 0.25 per cent cut in the repo rate and a 0.35 per cent cut in the reverse repo rate," said Aditi Nair, principal economist, ICRA.

"Retail inflation has crossed the MPC target of 2-6 per cent but it is expected to come within that range again by August 2020," Nair said.

Expressing a similar view, Rajkiran Rai, managing director and CEO, Union Bank of India, said, "There is a possibility of a 0.25 per cent cut or keep the rate unchanged."