Newly-appointed Reserve Bank of India (RBI) governor D Subbarao will present his maiden mid-term credit policy review for 2008-09 on October 24. He will meet chief executives of major scheduled commercial banks at 11 am on that day at the RBI headquarters.
Analysts are now keeping their fingers crossed on whether Subbarao would go for another rate hike in the forthcoming policy to tame the down double digit inflation.
According to a Goldman Sachs report, interest rates have peaked. ?With commodity prices falling and clear signs of demand slowing, our expectations are that inflation will go down significantly in early 2009. The case for raising rates has weakened considerably. Further, given the current tight liquidity scenario and the central bank?s move last week to ease the conditions, any further cash reserve ratio (CRR) hike is firmly ruled out in our view,? said Tushar Poddar, chief economist with Goldman Sachs. He added that as the macro concern shifts from high inflation to dwindling growth, we think the next move by the central bank would be to cut repo rates during the first quarter of 2009. ?Any earlier cut in interest rates is unlikely, in our view, as we expect inflation to remain in double digits throughout 2008. Tight liquidity in a slowing growth environment suggests that the RBI may use tools such as the statutory liquidity ratio (SLR) and the CRR to ease liquidity rather than to tighten it,? he said.
Interest rates have peaked in our view, oil prices have fallen, the monsoon has been near normal, and the external and financial sectors continue to be robust. However, with the global environment deteriorating, business cycle on the downswing, valuations still not too cheap, and risks from the fiscal deficit lingering and political uncertainties, the forecast is still far from sunny, said the report.