New Delhi: The Reserve Bank of India (RBI) is expected to cut the benchmark policy repo rate, which stands at 6.50 per cent, by at least 50 basis points, to support economic growth, a top industry body said on Thursday. To help the economy tide over the crisis following the Covid-19 pandemic, the central bank last reduced the repo rate by 40 basis points to 4 per cent in May 2020.
After consulting key stakeholders, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) believes that the Indian economy needs an urgent boost in demand and investment, which can be achieved by reducing the cost of borrowing.
“With Finance Minister Nirmala Sitharaman giving a liberal income tax relief to the middle class, the next booster is expected from the RBI,” ASSOCHAM said. The rate cut can enhance liquidity in the banking system and will also revive consumption and fiscal discipline. The central bank’s MPC shifted to a neutral stance in October last year.
The chamber’s General Secretary Manish Singhal said: “We are confident the MPC will deliver it, expecting a demand-led economic recovery in the short to medium term.” He added that the food inflation is moderating and there are bright prospects for the Rabi crop.
“Going forward by March-April, food prices should be further corrected, giving elbow room for a reversal in the rate cut cycle,” Singhal contended. The chamber further continued that the growth impetus is also required in the face of global headwinds in the form of tariff war amongst the top economies of the world.
“Exporters need to be given a strong support in a challenging environment,” Singhal noted. The chamber welcomed the RBI’s recent steps, such as the Rs 10,000 crore liquidity infusion by the National Housing Bank into housing finance companies.