The rate cut is a blessing to the Narendra Modi government with the elections just a week away.
The widely-expected quarter per cent rate cut announced by RBI governor Shaktikanta Das on Thursday is unlikely to see the benefit being passed on to consumers immediately or in full by banks with cheaper borrowing rates. Though the governor said he would look into this problem, an earlier meeting with banks didn't yield any salutary results. The banks are more concerned with shoring up balance sheets as they face a liquidity tightness. Surely the government and the RBI realise a piquant situation has emerged, as one arm of the government competes with another in offering attractive rates to depositors. The rates on post office savings schemes, for instance, are around seven to eight per cent, compared to six or 6.5 per cent by banks. The banks are also tackling a mismatch in credit growth at 14 per cent and the deposit rate, that has been growing at 10 per cent.
The rate cut is a blessing to the Narendra Modi government with the elections just a week away. It will give a boost to business sentiment and some impetus to the growth rate, which dipped to 6.6 per cent in the October-December 2018 quarter. The slowdown in industrial production, manufacturing, exports and private investment is an embarrassment for the Modi government which had promised a robust economy and a growth rate higher than that of the earlier Manmohan Singh government, as well as a strong rupee. The benign situation on the inflation front, with India having one of the lowest inflation rates worldwide, also warranted a rate cut.