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04
February 2019
 |
RBI
(The Total Investment & Insurance Solutions)
The
Reserve Bank of India in its monetary policy due on Thursday may change its
stance, but likely to remain on a pause mode, says State Bank of India (SBI) in
a research note.
The
report authored by Dr Soumya Kanti Ghosh, group chief economic adviser, SBI,
says, "There are indeed reasons to believe why RBI might just prefer to
cut in February rather than or in addition to in April annual policy. The first
cut might happen in April 2019, but we believe it will be shallow rate cut
cycle. However, we will not be overtly surprised if the RBI delivers a 25 basis
points (bp) rate cut on 7th February itself.
According
to SBI there are few reasons for its assessment for a rate pause by RBI.
"First,
headline inflation still remains significantly benign (to remain likely so till
August 2019) and growth has hit a soft patch. Sharp revisions in gross domestic
product (GDP) growth in FY2017 and FY2018 imply a sub 7% figure in FY2019,
clearly implying that we are currently in a slowdown mode. Also, inflation
might have just bottomed out in December."
"Second,
credit growth has declined for the second fortnight in January, implying that
incremental credit growth data available till December is showing significant
decline, which might have continued in January. This is not encouraging and is
evident for services, despite improvement in credit to non-banking finance
companies (NBFCs) in December. However, most encouraging is credit to micro and
small enterprises (MSE) sector, which has seen good growth in December due to
recently launched an outreach programme for micro, small and medium enterprises
(MSMEs). NBFCs primary issuance of corporate bond for the three month ended
December has declined by Rs25,168 crore. This rapid decline in three-months may
have shifted to banks credit portfolio. Bank credit to industry has jumped by
Rs47,700 crore during the same period. But bank results have been a turning
point!" SBI says.
SBI
further feels that general elections in April may perforce a rate cut earlier
than April 2019.
According
to the report, global growth is slowing down across continents. For example,
correction in property prices in Canada and Australia is the latest indicator
of such, though there is still not a consensus on US!
"However,
the factors that militate against a rate cut could be the high rural core that
has still not found entirely convincing explanations. We expect RBI to clearly
state in policy that it intends to look through such high core just as it did
for the housing component when pay commission recommendations were
announced," the report says.
The
other factor, SBI says is obviously an expansionary budget. It says,
"Apart from the FY2019 numbers being overly ambitious, and hence FY2020
numbers more of a ritual, an additional amount of Rs79,604 crore will have to
be raised in the remaining four months of this fiscal from small savings, apart
from Rs19,000 crore through dated borrowings! Clearly, the last word has not
been said on the fiscal front yet!"The
Total Investment & Insurance Solutions
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