If you plan to buy a house or a car, 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, even though the central bank, in a survey on Thursday warned that a sustained recovery in India's broader economy would depend on improvement in governance and removal of structural bottlenecks.
The bank has already cut the repo rate — its key lending rate — twice since January and business leaders have been rachetting up their demand for a repeat action.
The repo rate, 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.
"Growth continued to slow down in 2012-13, but could witness a slow-paced recovery later this year, contingent on improved governance and concerted action to resolve structural bottlenecks," the RBI said in Macroeconomic and Monetary Developments, a report card on the economy released on the eve of credit policy.
Three-year low inflation rates, 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 of 5% in the last fiscal year.
The Reserve bank of India said that recent surveys show that business and consumer confidence continue to remain subdued, which, in turn, is expected to pull down growth.
Headline wholesale prices-based inflation, which hit a 40-month low of 5.96% in March, could increase slightly during the second half of the current fiscal year ending March 2014.
"Most surveys anticipate modest gains, both on growth and inflation," the Reserve bank of India said.
India’s June-September monsoon is also likely to be normal, the Met department said last week, brightening prospects of bumper crops and economic recovery, crucial for a government heading into general elections.
But the Reserve bank of India warned that "the risk of a sub-normal monsoon to growth and inflation cannot be ignored altogether for 2013- 14 despite forecast of a normal monsoon."