RBI feels growth trends require more aggressive stimulus: Moody’s

Mumbai: Describing the Reserve Bank of India’s 50 basis points cut in its short term lending rate as more than what markets expected, international credit ratings agency Moody’s on Tuesday said the move indicates the RBI wanted to give an “aggressive stimulus” to subdued growth trends.

“The 50 basis point cut in the repo rate was higher than the market expectation of 25 basis points. This suggests that the RBI sees underlying growth trends as subdued enough to require more aggressive stimulus,” Moody’s Investors Service associate managing director Atsi Sheth said in a statement.

The RBI on Tuesday cut its repo rate, at which it lends to commercial banks, by 50 basis points, but made a pitch for passing it on to consumers in the form of cheaper personal and commercial credit. Stakeholders expected a 25-basis-point cut.

While the repurchase rate, or the interest charged on short-term borrowings, stands cut to 6.75 percent, it will take commercial banks to lower their own lending rates for personal, automobile, housing and commercial loans, translating into lower EMIs.

“The economic impact of the cut will depend on the speed and extent to which it translates into lower borrowing costs for households and investors,” Sheth said.

Fears over deficient rains in the current monsoon season and gradual progress of reforms had prompted Moody’s last month to lower India’s growth forecast for this year by 50 basis points to 7 percent.

“We have revised our GDP growth (for India) forecast down to around 7 percent in light of a drier than average monsoon although rainfall was not as low as feared at the start of the season,” it said in its latest “Global Macro Outlook 2015-16” released on Tuesday.

“One main risk to our forecast is that the pace of reforms slows significantly as consensus behind the need for reform weakens once the least controversial aspects of the government’s plan have been implemented,” it said.

One such reform, as indicated above, is the introduction of a pan-India goods and services tax regime, which is a lengthy process — beginning with an amendment to the Constitution and approvals by at least 15 states.

Welcoming the RBI’s decision, Finance Minister Arun Jaitley said on Tuesday this will support growth while showing that inflationary pressures were now moderating.

“Today’s rate cut will boost investment and growth. We are looking forward now to the transmission of these cuts, which will help boost economy and confidence,” the finance minister said in New Delhi.

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