'Employment Situation Worsened,' Says RBI's Consumer Confidence Survey

'Employment Situation Worsened,' Says RBI's Consumer Confidence Survey

And supporting this position, there was a further downgrade of the RBI's economic outlook for the current fiscal year, with growth now projected at 6.1% against the 6.9% projection at the August meeting (which itself was cut from 7.0%). The previous lowest repo rate of 5 per cent was recorded in March 2010.

Friday's cut takes the benchmark rate to the lowest in nearly a decade and follows a number of fiscal steps taken by the government recently to spur growth, including a surprise US$20 billion reduction in corporate taxes. The continued slowdown has led the RBI to lower India's economic growth projection to 6.1 per cent from 6.9 per cent for FY20.

"So far as the RBI is concerned, I would like to make it very clear that the banking system remains sound and stable and there is no reason for any panic", Das told reporters after the fourth bi-monthly monetary policy announcement.

Significantly, RBI's intention behind lower repo rate is defeated as commercial banks do not fully transmit the benefits of the reduced short term lending, which is required to lower interest cost on automobile and home loans, thereby boosting sales. The reverse repo rate is the rate at which the central bank borrows money from commercial banks.

The Reserve Bank of India's September 2019 round of Consumer Confidence Survey shows that 52.5 per cent Indians believe that the job scenario is getting worse, while 47.9 per cent believe that the overall economic situation has worsened.

"While the recent measures announced by the government are likely to help strengthen private consumption and spur private investment activity, the continuing slowdown warrants intensified efforts to restore the growth momentum".

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The bank's Monetary Policy Committee, however, retained its consumer price inflation forecast for the second half of the 2019-'20 financial year at 3.5%-3.7%. Five members voted in favor of 25bps cut and one-member voting to reduce the policy rate by 40bps.

The half-yearly Monetary Policy Report presented along with the policy review suggested that inflation will remain within the target levels till the early part of FY21.

The government has made a statement that they will adhere to the fiscal deficit target of the current year.

The RBI also cut its real gross domestic product (GDP) growth forecast for 2019/20 to 6.1 percent from a prior projection of 6.9 percent, citing forward-looking surveys that indicate persistently weak demand conditions will persist.

In its view, the prospects of agriculture have brightened considerably on the back of a good monsoon, positioning the sector favourably for regenerating employment and income, and the revival of domestic demand. The upshot here is that monetary easing and fiscal stimulus alone will not catapult the growth rate to 7.5-8 per cent on a sustained basis.

To an extent, this rate cut was already factored in by the market as the participants were divided with an expectation of a 25bps or a 35bps cut in the policy rate.

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