RBI may go for another rate cut as GDP slows to more than 6-year low

Analysts expect the MPC slashing interest rates by 25 basis points (bps), along with a marginal cut in gross domestic product (GDP) growth forecast for FY20

India's gross domestic product (GDP) growth has declined further to 4.5 per cent in second quarter (Q2) of the current fiscal from 5 per cent in Q1 of FY20 due to persistent slowdown in consumption, automobile sales and slump in manufacturing output. Given the fragile condition of economy, the Reserve Bank of India (RBI) may announce another rate cut in its monetary policy announcement scheduled next week.

The six-member monetary policy committee (MPC) led by Governor Shaktikanta Das will meet between December 3 and December 5 to review the interest rates. Analysts expect the MPC slashing rates by 25 basis points (bps), along with a marginal cut in gross domestic product (GDP) growth forecast for FY20.

"For the fiscal year FY20, our real GDP forecast stands at to 5.2 per cent, with risks to further downside. After 135 basis rate cut delivered by the RBI since February 2019, we expect the RBI to cut rates by an additional 25 bps in December, taking the repo rate to 4.90 per cent," said analyst at Yes Securities.

Also Read: GDP growth slows down to 6-year low of 4.5% in July-September quarter

According to analyst at Geojit Financial Services, the RBI will go for another rate cut in December.

"With the GDP growth slipping to 4.5 percent, it is expected that RBI will go for the next round of rate cut in December," said Deepthi Mary Mathew, Economist at Geojit Financial Services.

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The central bank's decision to go for next round of rate cut could be in sync with the government's recent measures, including a reduction in the corporate tax and promotion of credit offtake to boost economic activity amid the ongoing slowdown.

In 2019, the RBI has reduced the repo rate for the fifth consecutive time, brining rate down to 5.15 per cent, the lowest since March 2010. In June, the apex bank reduced the repo rate by 25 bps, followed by 35 bps cut in August. In October, RBI brought it further down by another 25 bps to 5.15 per cent.

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