RBI may pause on policy rate rise this time, says Deloitte

Financial advisory company Deloitte does not expect the Reserve Bank of India (RBI) to raise policy rates at its monetary policy review next week, even as inflation stands at 9.2 per cent in July.

However, it also expects the central bank to continue with its tight monetary policy to tame inflation till it reaches six per cent, though not this time around. "Our perspective is the RBI will pause this time following a 50 basis point rise in policy rates in its July review," Deloitte, Haskins & Sells Director Anis Chakravarty said.

The RBI has raised policy rates 11 times since early 2010 when it reversed its soft monetary stance as the ripple effects of global financial crisis had waned by then.

In its July review, RBI had raised repo (short-term lending) rate by 50 basis points, following which reverse repo (short-term borrowing) rate automatically rose by 50 basis points. “It is not that RBI will raise policy rates every time to tame inflation,” explained Chakravarty, while stressing the central bank will not completely pause the rates tightening process unless inflation falls to six per cent.

In its recent report on global economic outlook, Deloitte said, "Inflation is unlikely to subside in the near term and the RBI will probably continue raising interest rate until it stabilises at six per cent".

Chakravarty expects inflation to be in the range of 9.2-9.5 per cent in September. The August number will come next week. He said the RBI is determined to fight inflation and is not going to focus on gross domestic product and Index of Industrial Production numbers.

It is not the prime responsibility of the RBI to look at GDP and IIP numbers, that is the government's job, he said. The Reserve Bank's hawkish monetary stance has been blamed for stifling India's economic growth. India's GDP growth declined to 7.7 per cent in the first quarter of the current financial year from 8.8 per cent in the corresponding period of the previous year and 7.8 per cent in the fourth quarter of last financial year.

This is despite the revision in the growth rate in the first quarter of last financial year to 8.8 per cent from 9.3 per cent estimated earlier. Had the growth rate remained the same then economic growth rate would have decelerated to 7.2 per cent.