Mumbai, May 24 Further monetary policy easing is expected as the economy struggles with a demand downturn, liquidity constraint and a high finance cost, sources said on Friday.
It is learnt that Reserve Bank of India would stick with its stance and further lower the repo rate, which will in turn reinvigorate consumer sentiment and shore up economic growth.
Overall, the apex bank might cut repo rate by 150-200 basis points throughout this fiscal if inflation target remains insight. RBI’s medium-term target for consumer price index (CPI) inflation is of 4 per cent within a band of +/- 2 per cent.
Currently, the policy repo, or central bank’s short-term lending rate for commercial banks, stands at 6 per cent.
The proposed range of repo rate cut assumes significance as the overall economic growth is expected to decline on the back of slacking consumption due to farm distress, global headwinds and stagnant wages.
Furthermore, the slowdown has become evident in sectors such as automobile, FMCG and aviation.
Monetary policy easing helps banks to reduce their lending rates that helps both consumers and the industry to get access to cheaper finance.
While increased money flow in the hands of consumers help to boost sales and demand, for industry it means higher capital investment on the back of lower cost.
The latest economic indicators, including Index of Eight Core Industries and Index of Industrial Production have shown a downward trend.
In March, the country’s factory production shrunk by (-)0.1 per cent, the first contraction after June 2017, from a growth of 5.3 per cent reported for the corresponding month of 2018.
However, a benign inflation outlook might give enough room the apex bank to go in for an aggressive rate cut approach.
Last month, higher food and fuel prices increased the retail inflation to 2.92 per cent from 2.86 per cent in March. But year-on-year, the Consumer Price Index (CPI) in April was lower than the corresponding period of last year when retail inflation stood at 4.58 per cent.
According to industry insiders, public investment can no longer be counted on as the only vehicle to restart the economic cycle and monetary policy easing should provide the much needed incentive to the industry.
In addition, the RBI is expected to start discussions to break away from the convention of reducing key policy rate by 25 basis points or multiples thereof shortly with stakeholders like lenders, domain experts and within the Central Bank.
Another problem that has complicated the matter is of transmission of the rate cuts to lower bank’s interest charged on loans.
As per a the monthly report of March of the Finance Ministry, though easing of monetary policy has the potential to support growth, the recent cuts in repo rate are yet to transmit to weighted average lending rate of banks, thus the effects of the easing on investment activity are yet to manifest.
The RBI in April lowered its key lending rate by 25 basis points (bps) to 6 per cent. Before that, in February, the MPC had voted to lower the repo rate by 25 bps to 6.25 per cent.
With the swearing in of Justices B.R. Gavai, Surya Kant, Aniruddha Bose and A.S. Bopanna, the number of judges in the apex court now stands at 31, the full sanctioned strength of the top court.
Chief Justice Gogoi also attained the rare feat of overseeing the appointment of 10 Supreme Court judges.
Gogoi was sworn in as Chief Justice on October 3, 2018 and he would retire on November 17. Justice B.R. Gavai will become the CJI in 2025 for over six months. After retired Justice K.G. Balakrishnan, he will be the second CJI from the SC community.
Justice Surya Kant will succeed Justice Gavai as the CJI in November 2025. He will remain in office till February 2027.
The two other judges sworn in on May 24 are Jharkhand High Court and Gauhati High Court Chief Justices Aniruddha Bose and A.S. Bopanna respectively.
The government had earlier objected to two names: Justices Bose and Bopanna. It had informed the Supreme Court Collegium, citing seniority and representation of regions as the key issues.
The five-member Collegium is headed by the CJI.
The Supreme Court Collegium rejected the Centre’s comeback and recommended Justices Bhushan Ramkrishna Gavai and Surya Kant for elevation as the top court judges.
“The Collegium resolves to reiterate the afore-mentioned recommendation dated April 12, 2019, especially since nothing adverse regarding competence, conduct or integrity of Justices (1) Aniruddha Bose and (2) A.S. Bopanna has been pointed out,” the court said in a statement.
Justice Bose stands at number 12 in the combined seniority list of all-India High Court judges while Justice Bopanna stands at number 36.
On April 12, both judges were recommended by the Collegium for elevation to the Supreme Court after considering factors such as merit, seniority as well as regional representation on the Supreme Court bench.
The Collegium, rejecting the Centre’s plea, said that it was aware of the parameters while recommending the two judges. Following the procedure of seniority among judges in their respective high courts and then looking into the combined seniority on an all-India basis, it reiterated its proposal to elevate the two judges.