Planning to buy a home or a car next month? The Reserve Bank of India (RBI) may have some good news for you.
The RBI is widely expected to cut lending rates in its review meeting on Friday as administrators and macroeconomic managers seek to jumpstart Asia’s third-largest economy amid a string of recent data that indicate fledgling signs of a turnaround.
Inflation at a three-year low, rebound in exports, expectations of a normal monsoon and falling commodity prices have triggered hopes that the Indian economy may well be on course for a swift turnaround after hitting a decade-low growth of 5% in the last fiscal.
The sharp decline in WPI inflation to 5.96% in March, the lowest since December 2009 when it stood at 4.95%, comes on the heels of a moderation in March consumer-price index (CPI) inflation — a more realistic index as it captures shop-end prices —to a four month low of 10.39%.
“The better-than-expected WPI data therefore cement the case for a further 0.25 percentage point reduction in the repo rate,” said Richard Iley, chief Asia economist, BNP Paribas.
The bank has already cut the repo rate twice since January and business leaders have called for a repeat action. The repo rate, or the rate at which the RBI lends to commercial banks, now stands at 7.5%. A lower repo brings down banks’ borrowing costs, which in turn, prompts them to slash interest rates for final home, auto and corporate borrowers.
India’s June-September monsoon is also likely to be normal, the Met department said on Friday, brightening prospects of bumper crops and economic recovery.
Falling global commodity prices including crude oil and gold, combined with a potentially bountiful summer harvest should help temper down prices further.