The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is to announce its resolution on April 04, 2019, Thursday. In the first bi-monthly monetary policy statement for 2019-20 under a governor, Shaktikanta Das will announce its policy decision today. Lok Sabha Elections 2019 is almost upon us and the domestic equity market already influenced by the monetary policy announcement (Interest Rate Decisions) of today and Lok Sabha Elections ahead. The market is already expecting a rate cut in policy announcement by 25 basis points ahead of Lok Sabha polls along with a change in policy stance.
Not only the economists and analysts having expectations but also the Central Bank which is expecting to take a relook at its inflation numbers, growth target, and the liquidity framework.
So, the question is, how this policy meeting will affect citizens of the country and will it impact our money?
Most people are expecting the 25 bps cut in repo rate. The repo rate is the rate at which Central bank lends money to the commercial banks. When there is a cut in the repo rate, it can translate into cheaper loans. It allows an increase in the purchasing power of people. However when the last time the repo rate cut by 25 bps to 6.25% in the monetary policy the transmission remained too continued as a problem.
In short, if you are an existing borrower then it will not benefit you but if you are a new borrower, you’re likely to get benefit from the rate cut.
RBI to address Inflation:
In the previous monetary policy, RBI has estimated inflation for Q4FY19 at 2.8% which is likely to be breached on the downside, with Jan-Feb 2019 inflation at 2.3%. On top of that the industrial production number, core data, and auto sales number haven’t shown much growth lately.
Despite Reserve Bank of India (RBI) continued open-market operations and dollar-rupee swap, the liquidity of March-end is a deficit.
So, if the liquidity remains tight despite the rate cuts, then there will be no visible improvement in the deposit rate. And if the liquidity eases, you will see your fixed deposits rates fall.