According to a report, in the upcoming review, the Reserve Bank of India to ensure financial stability is expected to leave the repo rate unchanged. And, the Monetary Policy Committee is also expected to look for some unconventional policy measures to ensure the same.
The Monetary Policy Committee (MPC) is set to meet for three days, i.e., from 4 of August to August 6th, where they will be announcing its decision.
An SBI research report (Ecowrap) said, "We believe an August rate cut is unlikely. We believe that the MPC could now well debate what further unconventional policy measures could be resorted to in the current circumstances to ensure financial stability is continued to be addressed."
It also added that the banks have already transmitted 72 basis points to the customers on fresh loans. Which will be with 115 basis points reduction in repo rate. Also, some of the large banks have transmitted about 85 basis points.
Furthermore the report stated, "This has happened because of a proactive RBI using liquidity among others as a tool to serve its policy objective."
"We expect a jump in financial savings in FY21, also as a result of the precautionary motive," it added.
The report has also stated, "If we look the CPI inflation adjusted deposit rate (real interest rate), it has turned negative to (–) 0.8 per cent in December 2019, when inflation touched 7.4 per cent and deposits rate 6.6 per cent and thereafter continued in the negative zone due to the uptick in inflation and downward interest rate scenario."
Lastly, the report also expects that the inflation will remain in the increasing levels for the coming months. Hence the real interest rate would continue to be in the negative zone.
"We believe in the current scenario, this will be appropriate for financial markets as a negative real rate is unlikely to hurt household financial savings given the uncertainty surrounding pandemic," it stated.
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