1. RBI policy: How will Urjit Patel respond to Arun Jaitley’s rate cut call?

RBI policy: How will Urjit Patel respond to Arun Jaitley’s rate cut call?

The RBI will announce its second bi-monthly monetary policy review for the current fiscal today. Most experts believe that there would be no change in interest rates, adding that the central bank could adopt a wait and watch policy.

By: | Updated: June 7, 2017 2:55 PM
The Reserve Bank of India (RBI) will announce its second bi-monthly monetary policy review for the current fiscal today. Most experts believe that there would be no change in interest rates, adding that the central bank could adopt a wait and watch policy to see how inflation plays out. (Image: PTI)

The Reserve Bank of India (RBI) will announce its second bi-monthly monetary policy review for the current fiscal today. Most experts believe that there would be no change in interest rates, adding that the central bank could adopt a wait and watch policy to see how inflation plays out as GST, the nation’s biggest tax reform, is implemented from 1 July.

“Given the inflation trajectory and as the liquidity in enough in the market, it is unlikely that there would be any rate cut this time. I think commentary on the policy will be benign,” State Bank of India DMD and Chief Financial Officer, Anshula Kant, told PTI.

“I do not think RBI will cut the repo rate in the upcoming policy. They will wait for CPI data before taking a call. The tone of the policy is likely to be dovish,” said Vinod Kathuria, Executive Director, Union Bank of India.

However, the government is rooting for a rate cut to boost falling GDP growth rate, down to 7.1 percent for the Financial Year 2017 from 8 percent in the previous fiscal year. Arun Jaitley, Finance Minister, earlier said in an interview to CNBC-TV18 that based on available indicators such as low inflation, stable oil prices, and lagging growth and investments, the MPC should look to cut policy rates.

He further said that inflation has stayed under control for a long time and is expected to remain under control in the near future as well on account of a possibility of a good monsoon this year adding that the equilibrium between crude prices and shale gas prices will ensure that oil prices do not go through the roof and will remain in a range that is affordable by India. Jaitley quipped that given the current set of indicators, mentioned above, any Finance Minister would want the RBI to cut rates and so would the private sector.

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Global financial services major BofAML said in a report that the RBI’s Monetary Policy Committee is expected to maintain a dovish stance on Wednesday but might go for 25 basis points cut in the repo rate in August on good monsoon. However, Japanese financial services firm Nomura in a report said it expects the RBI rates to stay on hold until March 2018.

“We grow more confident of our contrarian call of a 25 bps RBI rate cut on August 2 as the just announced Goods and Services Tax (GST) rates are unlikely to be inflationary,” BofAML said.

BofAML said that high price risks on the retail front are moderating and CPI-based inflation is expected to be around 3 percent in the first half of this financial year as food prices are falling and El Nino risks are also receding and it expects May CPI inflation at about 2.5 percent, with daily data showing food prices continuing to fall even in June on a good summer rabi harvest.

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