Earlier in October, the Monetary Policy Committee of the Reserve Bank of India announced its bimonthly monetary policy. It cut the key lending rate, repo rate by 25 basis points to 5.15%. The MPC also maintained an accomodative stance.
What is repo rate and why does a cut in it matter? Well, repo rate is the rate at which India's central bank, RBI lends money to commercial banks. These banks then lend money to individuals, corporations, entrepreneurs for their individual or corporate needs. The repo rate thereby affects the interests you, I or a businessman or company will pay for any loans. It therefore affects the economy of the country. A lower repo rate means, lower cost of capital for the business. A lower cost of capital is supposed to make it possible for businesses to invest more and give a bump to the economic activity in the country. To cut a long story short, a repo rate cut is done to try and increase India's GDP growth.
This latest cut was the fifth consecutive rate cut done by the RBI. This wasn't all. The rate cut was overshadowed a bit by another announcement by the RBI. This was the cut in the GDP growth forecast by the RBI from 6.9% (as it had predicted earlier) to 6.1% now. In other words, the RBI does not expect the economy to grow faster in the remaining part of this financial year and therefore it cut down its forecast for GDP growth.
This has come at a time when we read stories about a major economic slowdown in the newspapers everyday. Just yesterday, Wall Street brokerage firm, Goldman Sachs, said that the present economic slowdown in the country is worse than the 2008 crisis. To get a deeper understanding of the issue, former Editor, Business Standard, A K Bhattacharya joins Ankur Bhardwaj in this special podcast. Tune in for more: