RBI monetary policy review tomorrow: What to expect

By: |
New Delhi | Updated: February 1, 2016 5:26:36 PM

As Reserve Bank of India is all set for its monetary policy review tomorrow, most analysts expect Raghuram Rajan to maintain status quo on the rate cut front.

RBI has cut its short term lending rate in September by 50 basis points to 6.75 percent. In 2015, RBI reduced its repo rate cumulatively by 1.25 percent. (Express Photo)RBI has cut its short term lending rate in September by 50 basis points to 6.75 percent. In 2015, RBI reduced its repo rate cumulatively by 1.25 percent. (Express Photo)

Reserve Bank of India (RBI), which is expected to unveil the six bi-monthly monetary policy review on Tuesday, is expected to hold rates amid rising inflationary pressures. The central bank may wait for cues from the Budget that would provide key macroeconomic direction.

RBI had cut its short term lending rate in September by 50 basis points to 6.75 percent. In 2015, RBI reduced its repo rate cumulatively by 1.25 per cent.

Retail inflation has inched up to 5.61% in December from 5.41% in November, as food inflation rose to 6.40% as compared to 6.07% in November.

Below are the expectation from the analysts on RBI monetary policy 

Analysts who are for ’25 bps rate cut’

Bank of America Merrill Lynch said it believed that the RBI will go for a rate cut by 25 bps.

“We continue to expect a final 25 bps RBI repo rate cut on February 2. That said, RBI is approaching the end of its rate-cutting cycle,” Bank of America Merrill Lynch said in a research note. BofA-ML sees “compelling reasons” for a rate cut on Tuesday.

Yes Bank Managing Director Rana Kapoor also said that he expects RBI to opt for a rate cut.

“We can hope for a rate cut. There is a case for deliberations and they are related to data points and data points are going to very apparent after the Budget. Once the budget points on fiscal achievement those are hardwired, then there is compelling case for RBI to cut rate,” said Rana Kapoor, Managing Director, Yes Bank.

VP Mahendru, Chairman, EON Electric said that they hope that RBI will reduce key policy rates.

“We are hoping that the RBI continues to reduce key policy rates when it conducts its sixth and final bi-monthly review of the monetary policy on February 2. In the last calendar year, the RBI had cut the rate several times to reduce it by 125 basis points to the current 6.75 per cent but the key interest rate was left unchanged in the review conducted in December. The market is once again keenly awaiting a reduction in key policy rates which will definitely provide a positive trigger to the economy”, said VP Mahendru.

Aman Agarwal, Governing Council Member, NAREDCO & Director, KV Developers also echoed the similar thoughts.

“Considering the overall economic situation, the real estate sector desperately needs reforms and regulations. Though the government is showing its intent to correct the measures, it needs equal backing from RBI to draft a balance between fiscal and monetary frameworks. In last review, the apex bank has kept status quo to balance the economic growth meter. This time we expect and foresee further rate cuts which will provide necessary impetus for housing demand to grow in India,” said Aman Agarwal.

Analysts who are for ‘status quo’

Singapore’s DBS bank said RBI is expected to maintain the status quo and will keep the interest rate unchanged on Tuesday.

“As markets stabilise, we expect the Reserve Bank to keep the rates on hold on February 2. After a total of 125 bps rate cuts in 2015, the benchmark Repo rate is likely to be held at 6.75 per cent and reverse repo rate at 5.75 per cent,” DBS said in a report on the Indian economy.

According to a Citi report, the central bank is likely to keep key policy rates unchanged until the budget and go for a 0.25 per cent easing in March or April this year.

“Considering the near-term risks on CPI inflation and the uncertainties around 2016-17 budget, we expect the RBI to leave the rates unchanged until the budget on February 29,” Citigroup said in a research note.

HSBC said it expects RBI to maintain status quo in the forthcoming policy.

“The current instability in markets and insufficient transmission (by banks) are further reasons why the RBI may not rush to cut the rate on February 2,” HSBC said.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1RBI monetary policy: Sharp rise in short-term rates could pose a challenge for Rajan
2Bad loans: Government plans to defuse ticking bank bomb
3Demerger dents IDFC earnings, Q3 net slides 58% to Rs 176 cr