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RBI monetary policy review: Raghuram Rajan unlikely to surprise on rate front this time around

Jan 28 2014, 09:36 IST
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Raghuram Rajan last week had indicated there could be no easing of rates when he said inflation was a destructive disease. IE photo Raghuram Rajan last week had indicated there could be no easing of rates when he said inflation was a destructive disease. IE photo
SummaryRBI Guv Raghuram Rajan had surprised markets in three reviews since taking charge...

RBI Governor Raghuram Rajan, who had surprised markets in three reviews since taking charge, is widely expected to keep key rates on hold despite a clamour for lowering them.

Various industry polls and analysts are predicting a status quo from the Reserve Bank of India (RBI) in the third quarter monetary policy review tomorrow, with a poll by foreign lender RBS saying over 80 per cent of bankers, insurers and corporates expect no changes in any of the key rates.

Rajan last week had indicated there could be no easing of rates when he said inflation was a destructive disease and there could be no trade off with growth. Inflation needs to be brought down, he said in his R N Kao Memorial lecture speech.

Finance Minister P. Chidambaram had last week strongly pitched for growth-supporting measures from the central bank. Speaking at the World Economic Forum in Davos, he said the RBI has an equal role to support growth.

SBI Chairperson Arundhati Bhattacharya declined to make a guess, saying, "The RBI will act in the best interests of everyone."

Two other public sector bankers - Canara Bank's R K Dubey and Oriental Bank of Commerce chief S L Bansal, told PTI that they expect the RBI to maintain status quo tomorrow.

HSBC India Country Head Naina Lal Kidwai said, "I believe that RBI will keep interest rate unchanged in this policy review. The message to the industry is quite important to make sure that we can get interest rates to at least plateau, if not come down."

Raghuram Rajan had surprised the markets on each of the past three occasions, increasing lending rates by 0.25 per cent in the September mid-quarter review and also in the October policy when everyone was expecting a cut. He left the rates unchanged at 7.75 per cent in the December mid-quarter review.

Rating agency Icra expects the RBI to retain the repo rate (at which RBI lends to banks) at the current level of 7.75 per cent tomorrow even though inflation eased in December.

With wholesale inflation cooling to a five-month low of 6.16 per cent in December, there is renewed demand from industry for a reduction in interest rates.

However, an SBI research report said, "RBI may keep rates steady on January 28 and wait for more information, particularly on trajectory of food inflation, before deciding the next course of policy action

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