rbi-rate-cut-driven-by-weak-manufacturing-sector-says-mpc

A significant slowdown in India’s manufacturing sector, which plays a crucial role in job creation, was a key reason behind the Reserve Bank of India’s recent decision to cut the repo rate.

 

Nagesh Kumar, an external member of the Monetary Policy Committee (MPC), highlighted this concern while explaining the factors that influenced the decision.

 

He pointed out that weak urban consumption and sluggish private investment growth have had a notable impact on the manufacturing sector.

 

This situation, combined with a challenging global economic environment and concerns about trade wars, raised worries about India’s overall economic stability.

 

India’s economic growth is projected to slow to 6.4 per cent for the financial year ending in March. This is the slowest growth rate in four years and falls below the lower end of the government’s initial estimates.

 

A major reason behind this slowdown is weaker manufacturing activity and reduced corporate investment.

 

The manufacturing sector expanded by only 2.2 per cent in the July-September quarter, which is significantly lower than the 7 per cent growth recorded in the previous quarter. This decline reflects weaker demand and reduced business confidence in the sector.

 

In February, the MPC announced a 25-basis-point cut in the repo rate. This was the first rate reduction in nearly five years. The decision was supported by a moderation in domestic inflation, which allowed room for a policy shift to boost economic growth.

 

Kumar noted that while interest rate cuts play a role in stimulating the economy, growth is also influenced by other factors. Public investment, tax policies that determine disposable incomes, and external demand for Indian exports all contribute to overall economic performance.

 

He stressed the importance of monitoring growth and inflation trends before the next monetary policy review in April. However, he expressed optimism about inflation, suggesting that global crude oil prices are likely to decline.

 

According to him, China’s economic slowdown, the recent ceasefire in the Middle East, and the possibility of a new Trump administration in the United States could lead to increased oil production and a greater focus on renewable energy.

 

These developments might help stabilise inflation and create a more favourable economic environment for India.