Mumbai: The Head-Fixed Income, Tata Mutual Fund, Murthy Nagarajan, Wednesday said that there is need for deeper cuts in policy rates to tackle the GDP slowdown.
Reacting to the RBI’s decision to reduce the Repo Rate by 35 basis points, Murthy in a statement has said, the GDP growth will face significant headwinds due to global uncertainity. “We feel deeper cuts in policy rates are required to tackle GDP slowdown”, he added.
Stating that the RBI has reduced the GDP growth forecast from 7% level to 6.9%, Murthy said, ” We expect the GDP growth to miss RBI projection and grow around 6.5%.” This will necessitate cut of 40 to 50 basis points more in Repo Rates along with providing sufficient liquidity in the banking system.
RBI took the unusual step of reducing the repo rate by 35 basis points. The repo rate now is 5.4 %. The reason for cutting repo rates is to increase the output in the economy, as per RBI, the economy is running significant slack due to consumption and investment slowdown.
The global economy is slowing down due to trade wars between US and china, Brexit uncertainty, high debt levels of households and geo political concerns in the middle east. 14 trillion USD of developed markets bonds are trading in negative territory.
“As per RBI , the one year forward CPI inflation is forecast at 3.6 %. Given the current Repo Rates of 5.4 %, the real rates is around 1.8 % (5.4- 3.6) levels which is on the higher side.”
” The number of defaults of companies has led to trust deficit amongst lenders. We are witnessing mutual funds and banks shying away from lending to NBFC, HFC and other corporates.”
“Given that many NBFC, HFC cater to the segment which is not serviced by the banks, the revival of these companies is crucial for the economy to grow at a robust pace”, he said and suggested that the “RBI and the government needs to support transmission of lower rates to these companies.”