RBI may cut its repo rate to 6%

Demonetization and global oil prices going up are the two major factors that will impact Monetary Policy Committee (MPC) of the Reserve Bank meeting. The six-member committee will be meeting on February 7 and 8 and take a call on possible rate cut.

The demonetization drive has resulted in a surge in bank deposits and the lending rates have fallen by up to 1%.
Last December when the committee met for the second bi-monthly monetary policy review had kept the repurchase rate by commercial banks unchanged at 6.25%. This was done keeping in mind various global and local factors like hike in the US interest rates etc.

Earlier this week, the Economic Survey presented in Parliament has suggested that the rising oil price will pose as a challenge to India’s growth graph.

“Price of crude oil (Indian basket) has increased from $39.9 in April 2016 to $52.7 in December 2016. For the next financial year, the recent uptick in global commodity prices, in particular crude oil prices, pose an upside risk,” it said.
In the last monetary policy review in January, the RBI has admitted that demonization has has lowered the gross value added growth estimates for the current fiscal to 7.1% from 7.6% forecast.
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