The central bank may announce a cut in the key lending rate by 25 bps as anticipated by the new SBI ECOWRAP report. This slashing in the interest rate, is seen as a move to manage the benign inflation rate which is expected to go down in the coming days.The monetary policy committee, headed by the new RBI Governor, Shaktikanta Das is going to meet on Tuesday and decide over this in its Bi-monthly policy. This would be maiden MPC meeting headed by the new RBI governor and is going to announce its decision on Friday.
The recent SBI ECOWRAP report anticipated a change in lending rate in the coming MPC report,stated to be released on 7 February, but also stated that MPC might think over bringing this change in the April report instead of now.
It is to be noted that the RBI has been maintaining a status quo on interest rate from the last 6 months.
SBI report has also stated the reasons behind this rate cut.The primary reason for the rate cut seems to be the low inflation. The inflation has declined from 2.33 in November to 2.19% in December 2018.It has hit its lowest since June 2017, and is expected to down, due to fall in food prices. As when interest rates are lowered by the central bank, more people tend to take loans from bank leading to increase in market growth and thus inflation goes up.
The move is expected to give some relief to the framers, who are distressed over low inflation rate and thus are not able to get good margins for their produce.