Factors guiding the interest rate in India

1. Fixing India's weak growth has become the highest priority while a benign
inflation outlook has given the central bank room to cut rates.
2. The Reserve Bank of India (RBI) lowered its benchmark interest rates for a
fourth straight meeting this month with a slightly bigger than expected cut
3. The six-member monetary policy committee (MPC) cut the repo rate by an
unconventional 35 basis points (bps) to 5.40 per cent.
4. Shaktikanta Das expected banks to move quicker on linking the lending
rates with repo rate for better transmission to support consumption and
demand. Since February, the RBI has cut the repo rate by a total 110 bps,
but most Indian banks have not followed quickly.
5. Most members of the committee, however, felt rate transmission would be
faster in coming weeks and months aided by surplus liquidity in the banking
system.
6. Annual retail inflation in July was 3.15 per cent, down from an eight-month
high of 3.18 per cent in June and staying below the central bank's 4 per
cent medium-term target for a 12th straight month, raising expectations for
a cut in October.
7. Last week, a Reuters poll predicted the RBI would ease its benchmark rate
by 25 basis points again to 5.15 per cent at its October meeting, followed
by a 15 basis point cut in the first quarter of 2020.
8. Underlying the need for a robust non-banking financial company(NBFC)
system, Mr Das said the RBI is exploring the regulatory change needed for
the housing finance companies and has sent suggestions on PSU bank
reforms to the government.
9. Finance Minister Nirmala Sitharaman has recently held several meetings
with industry leaders, who have called for stimulus measures, including tax
rebates, to support consumer demand and private investment.
10.Pami Dua, another member of the MPC, said while monetary policy can
impact cyclical factors, it has its limits when the slowdown is structural in
nature. Therefore, investment-focused fiscal policy and active continuation
of structural reforms are imperative at this point.
11.The government was looking into policy issues such as exempting foreign
portfolio investor trusts from recently imposed high tax, deferring a
 proposal to raise minimum public share holding in listed companies to 35
per cent from 25 per cent and easing of banking credit.
12.Given the evolving growth-inflation risk picture, monetary policy should be
used judiciously.