Limited impact

Interest rate reduction may not push credit offtake

In another out-of-turn policy meeting last week, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) reduced the policy repo rate by 40 basis points to 4 per cent. The reduction in the interest rate was necessitated by the deteriorating economic outlook. In the RBI’s assessment, the combined impact of compression in demand and supply disruption will keep economic activity depressed in the first half of the fiscal year. The economy is expected to recover in the second half, but given the uncertainties, the RBI expects growth to remain in negative territory in the current fiscal year.