RBI should reduce the repo rate at the next Bi-monthly Policy Statement on September 29, 2015

RBI Watch                                                                                    Monetary Policy 2015-16

Please read my blog of September 2, 2015. 

The August CPI figure confirmed that for the second consecutive month inflation was below the 4% level. RBI's projected path to January 2016 expected inflation to fall to 4%, and then a rise to 6%.

It looks very unlikely now that inflation will rise to 6% by January 2016.

My blog earlier today showed the unusually weak state of growth of bank deposits and lending. Till now the RBI's hands were tied down by the fact that inflation was high. But this is no longer the case now, even by the RBI’s own projections.  

The RBI, by most indicators, should now reduce the repo rate once again. Lending needs to be given another boost. As with many acts in policy making, everyone may not benefit.

Depositors are likely to receive less from banks. Or banks should be willing to reduce their margins; thereby attracting depositors, and resisting a further slowdown in their business.