RBI's bold decisions on repo, CRR will put GDP on higher growth path

Hans India

8 hours ago

The recent actions of RBI in a bold step of reducing rep rate of 50 basis points from earlier reducing rep rate at 25 basis points each in February, April 2025 thereby reducing repo rate by total 100 basis points from 6 5 per cent to 5.5 per cent along with a yet another major action of 100 basis points reduction in CRR in four phases from September thereby releasing an amount of Rs 2.5 lakhs of liquidity over and above already Rs 9.5 lakhs liquidity infused so far which has led to a surplus currently at Rs 2 lakhs daily, are considered most significant and aggressive and bold steps which are normally resorted when there are any abnormal situation like Covid 19 whereas currently the potential of India 's growth or aspirational growth which should be above 8 per cent growth on an average plus whereas the last quarter Q4 2024-25: growth of 7 4 per cent which itself gives an indication that with the proper reforms and enabling environment to propel growth, India can accelerate the growth momentum in spite of global headwinds as India's domestic growth drivers are strong with macro-economic fundamentals are in good shape.
As against the expected GDP growth of 6.5 per cent growth for 2024-25 and may be a similar growth of 6.5 per cent growth for 2025-26 which particularly with reference to global geo political tensions and trade uncertainties are projected at a lower level whereas there is a need to provide momentum to domestic private consumption both rural and urban which depends upon the purchasing power of the people as well on the price levels which according to current indicators of current and expected inflation is in a favourable trajectory except if they are any unexpected threat to good monsoon due to climate change risks which for the current year is projected to be above normal monsoon.
The other factors that with the current action of substantial reduction in repo rate, banks already started cutting lending rates as 4 PSB Banks namely BOB, PNB, BOI, UCO have moved first to lending rates by 50 basis points. Other Banks may also make similar move. RBI data gives that the earlier cut in repo rate has not much resulted in rate transmission both on outstanding loans as well on in incremental loans whereas it is expected that the current 50 basis points reduction in repo rate as the response from banks in effecting a similar reduction in lending rates, may result in making the borrowing from the banks must attractive particularly for retail loans like housing along with floating rates with the market rates are also getting cheaper for future will be a attractive proposition which may lead to people opting for more purchases which can enhance the consumption demand.
It is to be seen the consequence of increase in demand will lead to enhanced private sector investment for capacity expansion as one of the reasons for making liquidity available as well lower interest rate is to propel higher capacity utilisation as well new private sector capex. The higher demand for both non-discretionary and discretionary spending with higher purchasing power can make our manufacturing further robust as we have not been growing in manufacturing to the expected and desired level. Government has been aiming to ensure the share of manufacturing sector in GDP should rise to 25 per cent for some time and this is the time to make our manufacturing sector more productive innovative and technologically modern.
Along with the current steps taken by the RBI which are essentially a proactive and growth positive in a big way, both Centre and States should not be lacking in their proactive and positive policies and any reforms and steps to move with past in getting the thrust for manufacturing sector and ensure that the steps taken already are effective enough to give the desired outcome.
RBI has also changed the stance of monetary policy from accommodation to neutral and also stated that the space available for further action is limited. Accordingly with the current availability of limited space, RBI has swung into action by front loading the repo rate reduction from 25 basis points expected to 50 basis points reduction as Governor RBI feels that ' policy levers are needed to step up the growth momentum.
To further add to the current growth, we must take all possible steps to not only maintain but also enhance the share of exports to our growth. There is also a correlation between international trade and domestic growth and any hindrance particularly due to global trade uncertainties are to be tracked at a paster face which we must appreciate that government is moving on a faster pace to finalize the trade deal with USA along with other trade block likely EU along with maintaining excellent rapport and policy initiatives with other potential trade centres. India possesses a unique position even with current global trade challenges and wherever on a win-win basis by suitable trade tariffs changes with corresponding removing few of the irritating non tariffs barriers we must continue to grow our market share in international trade as growing exports with moderate essential imports will add to our aspirational growth.
As RBI Governor has mentioned that front loading of interest rates cut has been taken, now the market expects that there may be any rate cut in the immediate future, may be up to November or may be up to December as RBI may also want to see the visible positive impact on the ground of these favourable monetary actions. With the changes in stance from accommodative to neutral, RBI Governor states that ' from here onwards MPC is carefully assessing the incoming data and the evolving outlook to chart out of the future course of monetary policy in order to strike the right growth - inflation balance' This gives an indication that RBI will be data dependent and the assumptions which are the basis for current action as well the impact as desired particularly in inflation projected are coming true or not. Parallelly, RBI will be keen to watch how the GDP growth of India has taken positive response from taking the potential of Indian economy.