RBI’s Surprise To Everyone: No Rate Cut, No Support To Economy

Today RBI pulled a fast one on us and on the government — They didn’t cut the repo rate.

What Did RBI Do?

Today, the RBI kept the interest rate steady at 5.15%, after cutting interest rates five times in a row. Since February 2019, the Central Bank has cut interest rates by 135 basis points.

Why Is This A Surprise?

Because the economic growth is slowing down. Like really slowing down.

If you’ve been following our country’s GDP figures, you’d know that the GDP of India fell to 4.5%, hitting an over six-year low in the second quarter. It was the fifth straight quarter India witnessed a plunge in GDP figures.

So, it was obvious to think that the RBI would come to the country’s rescue and reduce rates for the sixth time and everybody would go home happy.

Except, RBI didn’t.

Analysts say that RBI has put the ball back in the government’s court and this move could be interpreted as RBI saying to the government, “See buddy, we can’t keep on rescuing the country every time. This time, you’re on own”. Not only us, even Shaktikanta Das, the governor of RBI, kinda sorta said something similar. He said, “The central bank cannot “mechanically” keep cutting interest rates every time”.

Should This Worry Me?

Yes.

Because the same RBI which refused to cut rates, has also lowered the real GDP growth for FY20 to 5% from 6.1%. And that’s a huge cut. By this move, we understand that the RBI knows pretty well that the country’s economic growth will continue to worsen yet they didn’t cut the rates.

This has already started affecting a lot of things — stock markets witnessed a huge plunge after the announcement, with bank stocks recording major losses.

In conclusion, the Indian government has to figure out a solution and they need to figure it out fast. A fiscal stimulus package, investments in major sectors or initiatives to invite more foreign investments — It could be anything but the country needs a real solution.

Because now that RBI is having other plans, let’s hope the government takes charge for a change!