RBI seen to cut interest rate tomorrow, but may flag risks

Reserve Bank Governor Raghuram Rajan is widely expected to cut interest rate tomorrow by a quarter per cent to a 4-year low to accelerate a sluggish economic recovery, but may underscore concerns over prices in a year when monsoon rains have been deficient.
RBI will present its fourth bi-monthly monetary policy for the current fiscal amid a clamour by the government as well as the industry for a cut in interest rate in view of subdued inflation, which Rajan had cited previously for no action.
The chorus for a rate cut has grown following headline inflation dipping due to lower commodity prices and industrial output yet to pick up pace. Rajan will have to balance these with concerns of a possible spike in food prices due to weak monsoon rains or a likely rise in global oil prices.

The impact of an anticipated US interest rate increase by the end of the year -- the first in nine years -- on emerging markets like India will also weigh on his mind in deciding on the monetary action.
The RBI Governor has been under pressure from the Finance Ministry as well as corporate executives to cut interest rate to spur recovery and mitigate the impact of slowing China on India.
Most bankers feel that benign inflation and status quo by the US Fed have given room for RBI to cut short-term lending (repo) rate by at least 0.25 per cent to 7 per cent.

Even Finance Minister Arun Jaitley last week asserted that common sense says interest rates should come down.