The RBI is expected to keep its key interest rate unchanged at its
penultimate monetary policy review of the fiscal on Wednesday at a time when inflation - the
central bank's key concern - has softened, as has GDP growth, according to the figures
for the second quarter ending in September.
At its previous bi-monthly review in October, the Reserve Bank of India's (RBI) Monetary
Policy Committee (MPC) held its repo, or short term lending rate, unchanged at 6.5 per cent
in a context of rising crude oil prices posing an inflationary risk as well as a weakening
October, fell to its lowest in a year at 3.31 per cent owing to lower food inflation, from 3.7 per cent in the previous month.
Besides, from the depths it had plunged, the rupee has since appreciated to a level of just over 70 to the US dollar.
Moreover, global crude oil prices have softened sharply from $86 per barrel in October to
Meanwhile, official data on November 30 showed the pace of India's GDP growth slowed
during the July-September quarter to 7.1 per cent, from 8.2 per cent in the previous one,
mainly on the back of a drop in manufacturing, agriculture and mining.
"RBI may get the much needed elbow room to keep the policy rate unchanged in the
"Based on the September quarter GDP growth and likelihood of lower growth in the second
half of the year, chances of fiscal slippage are very high. The central bank is expected to
stay on hold," he added.
Belying market expectations of a rate hike in October, the RBI held its repo rate unchanged
in the context of an uncertain global economic scenario but turned hawkish in its stance,
moving to one of calibrated tightening from the 'neutral' it has maintained over its six
previous policy reviews.
not bound to increase rates every time we meet.
"With this stance we have two options, we can either increase rates or hold them," he said.
A "neutral" stance allows the RBI to move either way on rates.
On the decision to hold the repo rate, Patel said that "actual inflation outcomes, especially
in August, were below projections as the expected seasonal increase in food prices did not
materialise and inflation excluding food and fuel moderated".
The RBI has lowered its inflation projection for the July-September quarter to 4.0 per cent,
and between 3.9-4.5 per cent for the second half of the fiscal "with risks somewhat to the
India's budgetary fiscal deficit for the April-October period at Rs 6.49 lakh crore has exceeded the target for the full fiscal, accounting for 103.9 per cent of the budgeted target of Rs 6.24 lakh crore, mainly owing to slow revenue growth.
The RBI's policy review is coming at a time of slowdown in growth and private investment, and soon after the ongoing liquidity crunch has provoked a tiff between the government and the central bank.
The government's differences with the RBI centres on four issues - the former wants liquidity support to head off any credit freeze risk, a relaxation in capital requirements for lenders, relaxing the prompt corrective action (PCA) rules for banks struggling with accumulated non-performing assets (NPAs), or bad loans, and support for micro, small and medium enterprises.
The current liquidity crunch, particularly among non-banking finance companies, follows a series of defaults last month by the privately-run Infrastructure Leasing and Financial Services and banks hesitating to lend after a series of scams, most notably the Rs 14,000 crore fraud on state-run Punjab National Bank reported in February.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)