Will Raghuram Rajan Cut Repo Rate For Third Time in 2015? Decision Shortly

Reserve Bank Governor Raghuram Rajan will announce the second bi-monthly monetary policy statement at 11 a.m. on Tuesday. Dr Rajan is expected to cut repo rate for the third time in 2015 to bolster economic growth, which continues to be sluggish despite headline GDP indicating a pick-up in the economy. Stock markets have already factored in a 25-basis point reduction in repo rate today. Here are 10 things to know ahead of the policy announcement: 1) A majority of economists polled by Reuters expect the Reserve Bank to cut the repo lending rate by 25 basis points to 7.25 per cent. The repo rate is the rate at which the RBI lends short-term money to banks. Some economists expect a surprise 50-basis point reduction in repo rate. 2) If the RBI cuts repo rate on Tuesday, it will be the third such reduction in rates this year. The central bank had earlier cut repo rate twice this year, both times outside the policy announcement. 3) A substantial reduction in inflation provides the RBI the comfort to cut repo rate. Consumer price inflation eased to a four-month low of 4.87 per cent in April. The data is in line with the RBI's mid-term targets. 4) A cut in repo rate will provide the much-need stimulus to the economy, analysts say. The latest GDP data indicates the economy grew at a healthy 7.3 per cent in fiscal year 2015, but analysts say the real indicator of growth, measured by gross value added to the economy, has decelerated sharply. (Read the full story) 5) India's economy grew 7.5 per cent in the March quarter - faster than China's 7 per cent expansion - but many economists say the data is not consistent with other indicators showing slack in the economy. Corporate earnings have been dismal, industrial activity has been weak, and bank credit growth was lowest in two decades in fiscal year 2015. 6) Further rate cuts would put India in a similar monetary path to China, which earlier this month cut interest rates for the third time in six months. 7) Finance Minister Arun Jaitley has repeatedly argued for a rate cut citing moderation in inflation and subdued industrial growth. Industrial output slumped to a five-month low in April. 8) Economists also expect the RBI to announce steps to boost liquidity. This will enable banks to cut interest rates on home and auto loans quickly. The RBI can cut the cash reserve ratio or the statuary liquidity ratio to boost liquidity. 9) Still, the RBI could temper any action with measured language, given concerns about lower-than-expected monsoon rainfalls and uncertainty about when the US Federal Reserve will start raising interest rates. 10) The RBI has also made rate cuts contingent on government action to deliver substantial reforms, such as reviving infrastructure growth. (With inputs from Reuters)

Will Raghuram Rajan Cut Repo Rate For Third Time in 2015? Decision Shortly

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