The Reserve Bank of India (RBI) may reduce interest rates in April and May. This estimate has been made by Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI. He has made this estimate based on the minutes of the monetary policy earlier this month. The minutes indicate a change in the central bank's stance on economic growth. Earlier this month, the RBI reduced the interest rate by 25 basis points in its monetary policy. It reduced the repo rate from 6.5 percent to 6.25 percent. The central bank reduced the repo rate after 5 years.
87,000 crores will come into the banking system next month
The liquidity crunch in the banking system is getting resolved. Rs 87,000 crore is expected to come into the system by the beginning of March. However, Ghosh said that liquidity conditions depend on many things. These include the cash balance of the government and RBI's intervention in the forex market. He said that RBI can announce a dividend of Rs 2.5-3 lakh crore in May. This will further reduce the pressure on liquidity. On the other hand, there is no possibility of a reduction in deposit rates soon. It will take a few months for banks to adjust the rates.
Low share of US exports in India's GDP
Regarding the US tariff on Indian exports, Ghosh said that India's exports to the US account for only 2% of its total GDP. Therefore, instead of direct trade value, it can have an impact in some other way. After Donald Trump became the US President, the possibility of a new trade war starting in the world has increased. Trump has announced to impose reciprocal tariff. This means that the US will impose the same tariff on the products of a country as it imposes on US products. Trump has instructed officials to decide the reciprocal tariff.
Also read: Effect of RBI reducing repo rate! These banks are offering cheap home loans
Monetary policy comes every two months
RBI reviews its monetary policy every month. It reduces or increases the repo rate according to the need of the economy. RBI's monetary policy committee meeting was held earlier this month. Now the next meeting of the monetary policy committee will be held in April.
