RBI Guv Raghuram Rajan may go for rate cut on Tuesday to spur economy: Bankers

By: | Published: September 27, 2015 11:21 AM

RBI Governor Raghuram Rajan may budge to government and industry pressure to cut interest rate with a view to spur economic recovery and mitigate the impact of slowing China on India.

raghuram rajanThere is a possibility of 0.25 per cent rate cut by Raghuram Rajan’s RBI, Union Bank of India Chairman & MD Arun Tiwari said. (Express photo)

RBI Governor Raghuram Rajan may budge to government and industry pressure to cut interest rate with a view to spur economic recovery and mitigate the impact of slowing China on India.

Most of the bankers feel that benign inflation and status quo by US Fed has given room for the RBI to cut short-term lending (repo) rate by at least 0.25 per cent to 7 per cent.

Even Finance Minister Arun Jaitley last week asserted that common sense says the interest rates should come down.

Jaitley had said inflation is “very much under control” and the country is better prepared than most emerging economies to weather the global economic turbulence.

Global turmoil triggered by devaluation of yuan and reports of slowing growth in China has impacted Indian currency and stock markets.

As regards the price situation, the wholesale price index (WPI) remained in negative territory for 10 months in a row and stood at (-)4.95 per cent, while the retail inflation (CPI) eased to a record low of 3.66 per cent in August.

However, first quarter GDP number of 7 per cent was below the market expectation.

These macro-economic details would be taken into account by the RBI during its fourth bi-monthly monetary policy review of this fiscal on September 29.

According to State Bank of India (SBI) Chairman Arundhati Bhattacharya, there is a space for rate cut as the possibility of food prices going up in coming months is negligible.

“I do still believe that there is a space for rate cut in India. How much is difficult to state at this point of time,” she said.

There is a possibility of 0.25 per cent rate cut by the RBI, Union Bank of India Chairman & MD Arun Tiwari said.

“I see a 25 basis points rate cut on September 29. But there will be no change in SLR and CRR as liquidity in the system is enough,” Tiwari said.

Echoing similar views HSBC India country head Naina Lal Kidwai said there is a strong chance of RBI cutting interest rate by 0.25 per cent on September 29 as inflation has come under control.

With decline in inflation and the US Fed handing emerging markets a lifeline by not raising interest rates, there is a “favourable” environment for monetary policy action by the RBI, Minister of State for Finance Jayant Sinha had said.

Earlier this month, the Fed heeded to calls from the World Bank and IMF by deciding not to go for first rate increase in almost a decade, stemming outflows from emerging economies.

On expectation from RBI policy review, Bank of Maharashtra executive director R K Gupta said: “With macroeconomic parameters improving, RBI is likely to cut repo rate. Also, there is pressure on RBI to support credit growth which has been muted for some time.”

The RBI has cut interest rates by 0.75 per cent in three equal tranches so far this year, but maintained status quo in its last monetary policy review on August 4.

NITI Aayog Vice-Chairman Arvind Panagariya said that “time is ripe” for a 0.5 per cent to 1 per cent cut in interest rate by the RBI.

“We need a rate cut of 50-100 basis points. I think time is ripe,” he had said.

Industry is also pitching for 0.50 per cent rate cut by the RBI as credit pick up is low and inflation is benign.

Expectations are running high among India Inc from the RBI to be more accommodative and cut benchmark interest rate between 25-50 basis points in the wake of continued deflation, Assocham said in a statement.

The RBI has been rather conservative and remained too much focused on inflation while growth in the industrial production, infrastructure and services is required for a real push to economy, it said.

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