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RBI gives stimulus to economy. Cuts rate by 25 bps.

RBI gives stimulus to economy. Cuts rate by 25bps.

RBI has taken a strong initiative to hike the economy by slashing prime lending rate by 25bps. It is distinctly evident that the country’s pace in economic activities has declined rapidly by a substantial margin. This has triggered the fifth consecutive rate slash by Reserve Bank of India (RBI). The RBI’s Monetary Policy Committee (MPC) held a meeting on the 4th of October 2019.

There were abounding issues and concerns that needed to be settled and looked after. Some of them are the following given below:

1. Decline in the forecast of FY20 GDP growth rate by 80 bps to 6.1% from 6.9%. The growth rate has fallen by a considerable measure.
2. Fall in the manufacturing capacity utilization rate that stood at 3.6% in April-June versus 76.1% at January-March.
3. Widening of the output gap, leading to adverse conditions.
4. The drop-off in the domestic demand conditions.

All the prevailing disincentives mentioned above resulted in the fifth consecutive rate cut by 25bps to 5.15%.

Implications

The points mentioned above, imply that the pace of economic activities is slackening. This further denotes that innumerable businesses are underperforming, having incurred huge losses. As the business environment is erratic, which makes it difficult for companies to cope with the dynamism related to it. 

Amidst the prevailing cut-throat competition, there are some firms that succeed to leave an indelible mark. And then there are some, that fail to have an impact, resulting in the slump of the company. Such companies require massive succor in terms of huge capital so as to revive their healthy state. Then, there are also companies, who wish to expand and variegate their business. That would require a galore amount of fund. So major aid and assistance are needed by such companies. 

India, being one of the fastest thriving nations, is known to generate one of the most efficient sets of skilled human resources. There are young minds and fresh talents emerging from everywhere throughout the country. Change in time has paved the way for an instrumental outlook. Reformed India thinks, feels and perceives differently. The country has innumerable bright minds with fresh ideas to implement.

 There are several potential entrepreneurs, wanting to commence their own start-up companies. So for entrepreneurs with gigantic visions and sparse resources at hand, the rate slash can work wonders. Indeed, this helps potential investors to bridge the gap between where they are and where they want to be.

Conclusion

However, the rate cut would be of major assistance to the investors. This would encourage copious investors to invest money. That in turn, would facilitate the growth of financial activities in the market. This would also help existing investors in expansion purpose and companies which are wanting to revive from their declining phase. All this would ensure a robust economy by accelerating the pace.

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