Reserve Bank of India to release interest rate decision

After a series of rate cuts, the Bank of India’s Monetary Policy Committee (MPC) is expected to announce another rate

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Photo: REUTERS/Francis Mascarenhas

After a series of rate cuts, the Bank of India’s Monetary Policy Committee (MPC) is expected to announce another rate cut today by 25 basis points to 3.75%.

The Indian government has instituted a strong financial response to the pandemic-induced slowdown of the economy, with a fiscal stimulus of 20 trillion rupees, almost 10% of GDP, and an expansionary monetary policy, pushing down interest rates. But attempts to entice firms and individuals to jump start the economy through borrowing have faltered and savings levels overall have risen by 10.8% in 2020.

Moderately lowering interest rates may not have the long-term effect the MPC is hoping for. With inflation, real interest rates are already at -0.8%. Even though it will cost Indians money to keep cash in banks, increasing bank deposits mean consumers foresee current economic uncertainties persisting long-term. Ultimately, New Delhi’s response to a deepening pandemic crisis will directly mirror the health of its economy. Without robust state support for a thinly-stretched healthcare system and increased testing, the Indian economy will not restart growth and, at least in the medium-term, foreign investors will look towards other countries with stronger responses.

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