RBI is Expected to Plunge Lending Rates by 25 bsp in 2018


To boost Indian economy, the Reserve Bank of India is planning to lower the lending rates from April next year. The Apex bank is expected to plunge the lending rate by 25 bsp, which will help the Indian economy to recover quickly, according to report.
Retail inflation is expected to cross 4-4.5 percent mark in 2018, much higher than the estimated 4 percent level as per economists and industry experts. Retail inflation directly influences RBI decision while taking monetary policy review meetings which has a direct connection with the common man’s pocket.
According to major financial firm, Bank of America Merrill Lynch (BofAML), inflation risks are “overdone” and though Consumer Price Index (CPI) inflation is expected to be 5.2 per cent in December 2017, it would cool down to about 4.5 per cent in the first half of upcoming year.
La-Nina, a critical ocean-atmosphere phenomenon will also play a critical role in shaping the inflation. According to Australian weather bureau, La-Nina will give boost to the South-West Monsoon in the upcoming year, which would contain inflationary pressures. El Nino is the uncommon warming of sea surface in the Pacific waters off the South American coast. La Nina is the positive stage of El Nino and is correlated with cooler than usual sea surface temperatures.
“We continue to expect the RBI MPC (Monetary Policy Committee) to cut policy rates by 25 bps in April to signal a lending rate cut in the ‘slack’ industrial season,” BofAML said in a research letter.
The report further mentioned that,  RBI was supposed to cut the lending rates by December 6, but surprised to see nothing concrete steps has been taken  before the busy industrial season that intensifies in the march quarter. The RBI kept repo rate unchanged at 6 per cent and reverse repo at 5.75 per cent in this fiscal year. It has even raised the inflation prediction for the remainder of 2017-18 to 4.3-4.7 per cent.
Lowering the lending rates uplift citizens purchasing capacity and flow more money into the market which ultimately drives growth in a positive trajectory.

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