NEW DELHI — The RBI monetary policy committee's (MPC) decision to go for a
relatively mammoth cut, while changing the stance to neutral, should not be
confused with a pause on future rate cuts trajectory in the medium term, but
rather a semblance of adopting flexible manoeuvrability on part of a conscious
regulator to diligently perform a new troika, a State Bank of India (SBI)
Research report said on Tuesday.
The Central Bank aims to manage the yield curve and
ensure adequate liquidity in the ecosystem, while renewing the pledge to keep
growth sacrosanct, mindful of inflationary concerns and checkmating any bubbles
formation, said Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.
“The current focus of RBI is to support the momentum in
capital formation for more durable growth,” Dr Ghosh mentioned.
The recent 50 bps cut in repo rate is the first such
instance post 2020.
“We have analysed the history of almost 25-year period of
jumbo rate actions and found that jumbo reductions are more often than the
jumbo rise. A jumbo action is mostly a reaction to a major key event and
aftermath (like global financial crisis (GFC), Covid-19, Russia-Ukraine
conflict, etc),” the report noted.
The report found that whenever the liquidity situation is
in deficit mode at the time of rate action (increase/decrease), it moved into
surplus mode after 6 months.
In the current rate easing cycle, RBI has already reduced
repo rate by 100 bps and the external linked benchmarked interest rates reduced
automatically.
“If we consider that 80 per cent of the retail and MSME
loans portfolio linked to EBLR (External Benchmark Lending Rate), then around
Rs 50,000 to Rs 60,000 will be saved by the households,” the report mentioned.
India’s household debt is relatively low (42 per cent)
compared to other emerging market economies (EMEs) (49.1 per cent). However, it
has increased over the past three years.
“Interestingly, the increase is driven by a growing
number of borrowers rather than an increase in average indebtedness,” according
to the report.
Also, the poverty estimates by SBI and World Bank are
remarkably similar. SBI estimates it at 4.6 per cent in 2024, down from 5.3 per
cent in 2023 as estimated by World Bank.
