RBI likely to soften hawkish monetary policy: Nomura

Ahead of the Reserve Bank of India's (RBI) September 16 monetary review, investment bank Nomura today said the central bank is likely to halt its move to raise policy rates, given the tight liquidity situation and lack of global demand.

"With monetary conditions tightening and global demand still sluggish, we retain our view that growth and inflation are likely to moderate in the coming quarters and that the RBI is close to pausing in its rate hiking cycle," Nomura said.

The RBI has been tightening key benchmark rates since November last year after the country started recovering from the impact of the global financial crisis.

In its last policy announcement on July 27, the RBI raised the repo rate, at which it lends to banks, by 25 basis points to 5.75 per cent and the reverse repo rate, at which it absorbs excess cash from the system, by 50 bps to 4.50 per cent.

In the policy review, it had also announced that mid- quarter statements will be given out, the first of which will be done on September 16.

The economy grew by 8.8 per cent in the April-June quarter vis-a-vis the corresponding quarter a year ago, the fastest pace in around three years.

However, industrial growth in June has fallen to a 12-month low of 7.1 per cent as demand cooled and the low base effect of the previous year faded away. It grew at double digits during the eight months till May.

Exports expansion, too, slowed to 13.2 per cent in July, the lowest growth rate so far this fiscal on account of the fragile economic recovery in the US and Europe, with total shipments valued at $16.2 billion. Growth in exports was 30 per cent in June and 35 per cent in May.

Between FY06 and FY08, the economy clocked an above 9 per cent growth. The global liquidity crisis had resulted in a slowdown in growth to 6.7 per cent in FY09 and 7.4 per cent in FY10.

Meanwhile, inflation based on wholesale prices for July fell to a single digit at 9.97 per cent after a gap of 5 months, on moderating food and non-food prices, raising hopes of a sustained decline. August inflation data is due on September 14.