There is a consensus in the market that the six-member monetary policy
committee won’t change the policy repo rate
in their two-day meet that concludes on Wednesday.
Not only rising inflation, but hardening bond yields, and tightening liquidity also reduce the scope for the central bank to go lenient on rates for now. As such, the policy repo rate
is expected to stay at 6 per cent, said a 10-member BS poll of economists and bond dealers.
While the policy stance would likely remain at ‘neutral’, many economists say it could be the end of rates easing cycle.
The Reserve Bank of India
(RBI) possibly cannot lower its rates at a time when global central banks are tightening their monetary stance. The interest rate spread has to be maintained for foreign investors to put their money in Indian stocks and bonds.
The central argument against the rate cut continues to be rising inflation. The retail inflation in October was at 3.58 per cent, and according to many economists polled, the reading could be around 4.5 per cent for the rest of this financial year. While Moody’s did upgrade India, other rating agencies are yet to change their stance and therefore the RBI
would unlikely consider the better rating by one agency to justify a rate cut, economists said.