Government is really pushing hard RBI for “big” rate cut

At the time whole world is reeling under acute economic slowdown, government of India seems fully confident to make this situation a big opportunity for India and government think tank is moving very fast to aligned the strategy accordingly. On one hand government is all geared up to push another leg of reforms across various industries, especially into financial sector and on the other government is also eagerly looking to RBI for a big monetary boost. Sources in the finance ministry told DSIJ that government is really pushing hard for a “big” interest rate cut so that economy will get much desired impetus.

Importantly RBI has cut rates by 75 basis points since January in a phased manner but Indian inc. is really asking for more and pushing hard for it. This point was on the top of the agenda of corporate world when heads of big companies met PM Narendra Modi earlier this week. RBI Governor Raghuram Rajan was also present in that meeting. Sources in the government informed the RBI has given indication to the government that around 25 basis interest cut can easily be accommodated in the forthcoming monetary policy review but government doesn’t seem to be amused by that.

Government is asking for at least 50 basis interest rate cut as it wants to ease finance to infrastructure, automobile, real estate sector. On this demand of government, RBI has put forward the assertion that bankers hadn’t passed on the real benefit of its earlier rate cuts to the customers and any further rate cuts may also be absorbed by the banks to increase their margins. Also due to lower base effect, concern of inflation would again come back to haunt Indian economy.

RBI and Government is now keenly looking at the US Federal Reserve stance on September 17 and if it defers its rate cut move further, government would go all out to ‘convince’ RBI to follow aggressive monetary policy. PMO is directly overseeing this situation along with finance ministry and ample amount of pressure has already been exerted on RBI to cut the rates.