Monetary policy: Raghuram Rajan's RBI likely to leave key policy rates unchanged

Sep 18 2013, 16:06 IST
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Economists expect RBI Governor Raghuram Rajan to retain his predecessor's stance. Economists expect RBI Governor Raghuram Rajan to retain his predecessor's stance.
SummaryMajority of economists, polled in a survey, expect central bank's focus to remain on rupee stability.

The Reserve Bank of India's new Governor Raghuram Rajan is expected to leave key policy rates unchanged in his first monetary policy review on Friday, and continue emergency cash tightening measures initiated in-mid July to stabilise the rupee, and check racing inflation.

Related: RBI 'monetary policy meet is key' for stock markets

Of the 52 economists polled, 50 expect the policy repo rate to remain at 7.25 per cent, and 47 of 48 respondents see the cash reserve ratio, or the portion of deposits banks have to maintain with the central bank, unchanged at 4.00 per cent.

Related: Rajan's RBI to keep monetary policy tight till rupee stabilises: PMEAC

Of 37 economists polled, 30 expect no change in the Marginal Standing Facility (MSF) rate or the rate at which banks access funds for emergency needs. The MSF rate was raised by 200 basis points in July as part of slew of cash tightening steps aimed at rescuing the rupee.

Of 32 economists polled, 17 said they expect the RBI to retain the cash tightening steps, while another 28 out of 38 said they do not expect more measures to strengthen the rupee.

The majority of economists polled expect RBI's focus to remain on rupee stability with price stability coming a close second. Eighteen of 35 economists polled expect Rajan to retain his predecessor's stance, while 12 expect a more growth-oriented approach.

The rupee slumped to a record low of 68.85 to the dollar on August 28 but has since clawed back some ground and last traded at 63.22 on Wednesday.

India's headline inflation rate based on the wholesale price index soared to a six-month high of 6.1 per cent in August.

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