Rates to remain high in FY15 if Urjit Patel model accepted: Crisil

Also says real policy rate should be positive, implying that the repo rate should be higher than the expected CPI inflation

Credit rating agency Crisil today said interest rates will remain firm if RBI accepts the recommendations of the Urjit Patel committee, which has suggested that the central bank should target inflation.

 

"If the RBI accepts the recommendations of the Urjit Patel committee, interest rates are unlikely to come down in 2014-15...," Crisil said in 'India Economic Forecast' report.

 

The Committee has recommended yesterday that the Reserve Bank should bring down CPI or retail inflation to 8 % over the next 12 months, and to 6 % over the next 24 months.

 

It has also advocated that the real policy rate should be positive, implying that the repo rate (currently at 7.75 %) should be higher than the expected CPI inflation (expected to average around 8.5 % in 2014-15).

 

"In other words, there is little scope for monetary policy to boost growth in 2014-15. Any recovery in investments therefore, will be largely driven by clearance of stalled projects," Crisil said.

 

The panel has recommended transforming RBI to US Federal Reserve type body with the main objective of capping retail inflation at 4 %, with a band of +/- 2 %.

 

"If its recommendations are adopted by the RBI, it will shift its focus on taming retail inflation... We currently expect CPI inflation to moderate to 8.5 % in 2014-15," Crisil said.