RBI Governor Raghuram Rajan under pressure to cut rates: Will he succumb to it?
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Do you think the RBI will go for rate cut tomorrow? The central bank is under extreme pressure to cut interest rates in its third monetary policy review of this fiscal. Well, we have to wait for August 4, but its effect is noticed today on the benchmark BSE However, experts have voiced different views over the issue, saying high retail
Most bankers and experts are of the view that the possibility of an
In the wake of low wholesale inflation and slowdown in industrial growth, India Inc is pitching for a rate cut. Even the government wants the benchmark rate to be cut to prop up growth.
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While retail inflation in June rose to an eight-month high of 5.4%, the overall wholesale price index (WPI) based inflation was (-) 2.4% in the same month.
The central bank mostly tracks the consumer price inflation for its monetary policy decision.
Bank of Baroda Managing Director and CEO Ranjan Dhawan said: "It would be a status quo. I don't think there has been much change in the macroeconomic conditions from the last policy.”
He said that the central bank is closely monitoring monsoon and so far nothing could be said about its nature - good or bad.
Some bankers are of the view that there is scope for further rate cut by RBI, but whether it accommodates that in this policy is in the realm of speculation.
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HDFC Bank Deputy MD Paresh Sukthankar said: "... it is difficult to hazard a guess on what move the RBI would be taking on Tuesday, but interest rates are on a downward trend. I expect RBI to cut rates by 25-50 basis points this fiscal."
Monsoon has been good so far and the impact on farm production is awaited, she said, adding, "Our challenge is not about just base rate that RBI will do, but the banking system should make interest rate much more attractive for investment".
According to analysts research firm Moody's, the central bank might cut the benchmark rate by 0.25% in the bi-monthly monetary policy review tomorrow as inflation is likely to remain subdued on the back of average rainfall and lower commodity prices.
On June, in its last review, the Reserve Bank of India cut repo rate 0.25% for the third time this year.
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During the calender year, RBI has reduced the rate thrice by 0.75%. It was cut by 0.25% each in January, March and June.
The central bank cut the policy rate (the short-term lending rate) to 7.25% in June from the earlier 7.5%, but left cash reserve ratio (
"RBI meets next on August 4 and we expect the benchmark repo rate to be held unchanged at 7.25% after cumulative 75 bps cuts since January 2015," DBS said in a research report.
It said that if the official commentary signals a start to the US rate hiking cycle later this year, "it will affirm our expectations that RBI will maintain a prolonged pause on the rates front".
Industry chamber ASSCOCHAM also pitched for reduction in repo rate by 25 basis points.
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Factors like a modest rise in minimum support price (MSP) for various crops together with benign global commodity prices and others are likely to result in moderating consumer price index (CPI) at 5.2-5.4% in the second half, thereby undershooting the apex bank's earlier projection of six% in January 2016, it said.
(Image: Reuters)
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