RBI MPC meet: Top economists call for 50bps cut in repo rate ahead of monetary policy

Ahead of the announcement of the monetary policy on June 6 by the Reserve Bank of India (RBI), economists have called for a 50 basis points (bps) cut in the repo rate. The banking regulator has reduced the repo rate twice by 25 basis points each in February and April to stimulate economic growth. The repo rate is at 6% currently.

“Monetary easing is the right move at this juncture. Monetary policy is about managing the cycles. When the cycle is down, like it is now, the monetary lever needs to be pressed,” said D. K. Joshi, Chief Economist, Crisil Ltd .

“There is an opportunity to press the monetary lever as inflation has come down much faster than expected. Crude oil prices have also come down. The monsoon is expected to be good,” Joshi told Fortune India during an exclusive interaction at the latest Fortune India Boardroom titled The Economy: Headwinds or Opportunity?

“We expect a rate cut of 50 basis points. It will help urban demand,” Joshi added.

Anubhuti Sahay, Head (India Economic Research), Standard Chartered Bank , pointed out during the Boardroom that both the RBI and the government have overdelivered compared with expectations.

“RBI has already delivered a 50 bps rate cut, and we think another 50 bps will come through. If we just focus on the retail borrowers, for example, people who have taken home loans, it translates into interest rate savings of 0.3% of GDP. Let us not forget that on February 1, we received a major tax cut—the biggest in the last two decades,” Sahay added.

“Counter-cyclical policies, both from the government and the RBI, are commendable. These will offset some of the uncertainties. We expect the RBI to continue to remain accommodative. But further structural reforms are needed for 8% plus growth, and counter-cyclical moves will only complement that,” Sahay said.

On measures and policy initiatives that need to be taken to break the 6.5% GDP growth silo and move the needle towards 8%, the economists pointed towards productivity and income growth, playing the tariff tantrum strategically, and suggested the industry look beyond protectionism cover.

“India is on a stable growth path but a lot more efforts need to be taken to move the productivity curve. Income-generating capacity is the root problem of the Indian economy. We are still providing free foodgrains and subsidies to a significant portion of the population. Enhancing efficiency and productivity are key to growth. We need to see how we can increase the per capita income. That is the big challenge,” said Indranil Pan, Chief Economist, YES Bank .

Per capita income growth will come in the wake of economic growth, argued Sachchidanand Shukla, Group Chief Economist, L&T India. “Per capita income will rise as the economy grows. India needs to leverage global merchandise trade and services exports. We need to press domestic growth levers in a de-globalizing world. The infrastructure opportunity needs to be leveraged. We are optimistic about the medium- to long-term growth story of India,” Shukla added.

On the tariff tantrums and India’s options amidst the trade war, Madhavi Arora, Chief Economist, Emkay Global Financial Services, said India needs to play its cards strategically. “We are in the midst of a global reset and need to play our cards strategically. Economies turning inward may be a temporary phenomenon. We may see one or two years of reset to ensure a power balance,” Arora said.

“The US is aiming at China’s immense gain in export significance. We hope India gets a share of the global export pie. The private sector will need to scale up as policymakers try to get India on the world map. Also, domestic industries need to be dynamic and think beyond protectionism,” Arora added.