FROM NEUTRAL TO ACCOMMODATIVE
Businessworld|October 12, 2019
Will the change in RBI's monetary policy stance help boost growth?
Manika Gupta
FROM NEUTRAL TO ACCOMMODATIVE

AFTER HER FIRST Union Budget, which almost remained a non-event in terms of any reforms, Finance Minister Nirmala Sitharaman has gone on to introduce different policy decisions over the past couple of weeks, with the major one being the reduction of the corporate tax rate. Such announcements were frequent in nature and also referred to as budget-on-instalments on a lighter note.

The Reserve Bank of India under Governor Shaktikanta Das also switched its stance from neutral to accommodative. In common parlance, accommodative stance is taken when a central bank (such as RBI) attempts to expand the overall money supply to boost the economy when growth is slowing (as measured by GDP). The policy is implemented to allow the money supply to rise in line with national income and the demand for money.

Under the governorship of Das, the Reserve Bank of India delivered more rate cuts than ever in the past. This was, indeed, unprecedented. “Effectively, the rate cut has been 100 basis points if you take into account the change in stance,” Das said. And the latest bi-monthly review on October 4, by the six member Monetary Policy Committee (MPC) headed by Das, slashed the short-term lending rate, repo rate, by 25 basis points. This was the fifth consecutive rate cut effected by the Das-led monetary policy panel, and it was in addition to a cumulative 110 basis points rate cut that RBI has announced so far this year. The repo rate now stands at 5.15 per cent, the lowest since March 2010.

Is it growth-oriented?

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