Governor Raghuram Rajan-led Reserve Bank of India is likely to maintain status quo on interest rates during its annual monetary policy review today...
Governor Raghuram Rajan-led Reserve Bank of India is likely to maintain status quo on interest rates during its annual monetary policy review today due to increased food prices after unseasonable rains in various parts of the country, bankers and experts said.
Inflation has bounced off November’s low of 3.3 per cent to 5.4 per cent in February 2015, but is still below January 2016 target. The recent bout of unseasonal weather developments and damage to selected winter crops might stoke worries over food inflation. Global fuel prices have also bottomed out in recent weeks, limiting further downside in inflation prints. A cautious policy statement might hurt optimism.
“Looking ahead, we see room for another 25 bps cut by June and pause thereafter, set against the likelihood of US rate hikes in 2H15, a narrowing output gap and our in-house expectations for gradual rupee depreciation in the quarters ahead,” said an official of DBS Bank.
Union Bank’s CMD Arun Tiwari said it is “highly unlikely” that the Reserve Bank of India would further ease its monetary policy on April 7, given the current price situation, as they have already done so twice in quick succession.
Hitesh Agrawal, head of research, Reliance Securities, said, “we expect the RBI to maintain status quo in the April 7 monetary policy as they might want to wait for more confirming data on inflation before taking any further action. Inflationary pressures in March 2015 are likely to firm up further given the disruption in crops due to non seasonal rainfall and relative rise in crude oil prices.”
The RBI had lowered its policy rate by 25 basis points to 7.5 per cent on March 4, after a similar cut on January 15, on the back of softening inflation and the government’s commitment to continue with the fiscal consolidation. Both the rate cuts were announced outside RBI’s regular policy review.
Indian Banks’ Association Chairman T M Bhasin, who is also CMD of Indian Bank, said: “We are expecting a cut in CRR so that banks can reduce lending rate.” A cut in repo rate at this point would not help banks lower their interest rates, as they are not borrowing much. The credit off take is low and is expected to remain so in the first quarter of 2015-15, he said.
# Inflation has bounced off November’s low of 3.3 per cent to 5.4 per cent in February 2015, but still below January 2016 target
# The recent bout of unseasonal weather developments and damage to selected winter crops might stoke worries over food inflation