Global Business

RBI a rate cut away from post-Lehman lending rate

Filed on December 2, 2019

(File photo)

The repo rate reached its lowest point in 2009 soon after the collapse of Lehman Brothers.

India's central bank may just be days away from bringing down the lending rates near its historic low of 4.75 per cent, from the current 5.15 per cent. The repo rate reached its lowest point in 2009 soon after the collapse of Lehman Brothers and the ensuing global financial crisis.

The factors that led to the global financial meltdown in 2008 and slashing of policy rates to a record low may well be different, but the December Monetary Policy Committee meeting will begin with an albatross around its neck in the form of the GDP growth rate that slipped to a six-year low in the September quarter.

"The current circumstances are difficult right now. We have an acute risk aversion in the system. At that time of the Lehman crisis, the external crises converted to domestic liquidity issues because of the capital flight. But at present, the liquidity squeeze is coming from the unresolved NBFC problems. The situation is similar and we need to keep working to fix it," Abheek Barua, chief economist at HDFC Bank, told IANS.

"Apart from cutting rates, we also need to focus on solutions like the Federal Reserve did in the wake of the Lehman crisis. I am in favour of some kind of troubled asset relief programme or a government entity buying out some of the liquid asset... a kind of fund flow to the NBFC sector directly from the central bank," he added. - IANS

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