With inflation falling to record low levels, financial experts said that the time is most appropriate to reduce the benchmark lending rate. There are expectations that the Reserve Bank of India (RBI) will cut its benchmark lending rate by around 0.25 percent during its third bi-monthly monetary policy review, which will be held on August 2. It may be recalled that there were such expectations earlier as well, but the RBI had kept the lending rate at 6.25 percent during all its previous four monetary policy reviews. However, things could change this time since experts feel that there has been significant price improvement is the last few months.
Experts pointed out to two main factors, firstly, the inflation has come down significantly and secondly, industrial growth continues to be sluggish. If the RBI cuts interest rates, inflation could still be kept in control and there will be a major boost to credit growth. Hence, it will help achieve both objectives of keeping inflation in check and boosting industrial growth. Experts also said that even though the RBI may announce a rate cut, it is likely to leave the Cash Reserve Ratio or Statutory Liquidity Ratio as is. RBI’s inflation target is around 4 percent for 2017-18, but in June, it has come down to 1.54 percent. This implies that there is plenty of scope to reduce interest rates.