Taking the street by surprise, the Reserve Bank of India on Thursday cut the key interest rate after inflation cooled and also gave a sanguine forecast for the year ahead. However, its own survey of people in 13 major cities, including Bengaluru, showed a massive 76% of respondents feared prices would hit the roof in the course of the year.
The RBI’s monetary policy committee reduced the policy repo rate by 25 basis points to 6.25% at a time when a majority of people were expecting some tightening or at least a status quo after large Budget giveaways by the Centre that may stoke inflation.
Delivering his first monetary policy after taking over the reins in December, RBI Governor Shaktikanta Das, however, not only reduced the rates but also changed the policy stance to neutral, from calibrated tightening that signalled further rate cuts in the future.
Inflation cooled off to an 18-month low of 2.2% in December and the RBI estimated that it would not rise above 4% in the next financial year (2019-20).
On the contrary, the central bank’s Consumer Confidence Survey of 5,347 people across Indian cities done in December said that a majority of 76.3% of them felt inflation would increase in the one year head period.
Worse, a sizeable number 46.1% felt their spending would increase on buying non-essential items in the next one year. The households’ pessimism on this count has increased from the last survey.
A large number of people (44.3%) remained worried about the current employment situation in the country though a majority expected it would improve in the next one year.
The RBI conducts the consumer confidence survey on a bi-monthly basis and it captures the response from people above 21 years on questions pertaining to economic conditions, income, spending, inflation and employment among others.
The survey is considered a barometer of the level of confidence people have in the government of the day. The current survey has come at a time when general elections are around the corner and the NDA government is under attack for the highest level of joblessness in the country in the past 45 years.
The central bank’s rate move would, however, give a much-needed boost to housing and other retail sectors as it would make loans cheaper. It has also opened the floodgates for real estate borrowers, sweetening the deal further for them after the Union Budget handed out tax reliefs.
The move to raise the limit of collateral free farm loan by 60% to Rs 1.6 lakh, would increase the demand for credit from small and medium farmers and boost rural consumption, something that the government targets ahead of elections.
via Rate cut: RBI price fall claim contradicts survey | Deccan Herald