With the latest and fourth successive policy rate cut of 25 basis points, the cumulative reduction is 135 basis points. According to our analyst (see edit page), the RBI’s monetary policy during the current fiscal has become an excessively routine and theoretical exercise with undue focus on an accommodative stance.
The RBI Governor’s observation that there is room for a further rate cut had raised expectations in the market; yet the market, rather than getting enthused at the rate cut, went into a slump.
Apparently, the lingering growth blues – with a revised 6.1 per cent projection for this fiscal, as against 6.9 per cent earlier -- has eclipsed the rate cut and spooked the market. (The BSE Sensex tumbled 433.56 points or 1.14 per cent to close at 37,673.31.)
The arguments for a policy rate cut set out in the MPC resolution are based on a benign retail inflation outlook. Since retail inflation will continue to hover below 4 per cent and growth is slowing down, the MPC experts have taken recourse to a textbook solution to revive growth. Incidentally, the RBI has been taking recourse to such measures since February 2019 but without spurring growth.
