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RBI may maintain status quo on Tuesday

Experts feel there is a case for front-loading of interest rate cut to give a push to economy

Press Trust of India  |  New Delhi 

Raghuram Rajan
Raghuram Rajan

As trends upwards, may keep unchanged in the upcoming monetary policy review on Tuesday and possibly take a call post Budget 2016-17, which will give a direction about key macroeconomic parameters, including fiscal deficit, experts said.

However, some experts also feel that there is a case for front-loading of cut to give a push to economy.

"We can hope for rate cut. There is a case for deliberation and deliberations are related to data points and data points are going to very apparent after the Budget. Once the budget points on fiscal achievement those are hardwired then there is compelling case for to cut rate," Managing Director Rana Kapoor told PTI.

According to a Citi report, is likely to keep key policy rates unchanged until the budget and go for a 0.25% easing in March or April this year.

"Considering the near-term risks on and the uncertainties around FY17 budget, we expect the RBI to leave rates unchanged until the budget on February 29," Citigroup said in a research note.

WPI as well as retail has been on rising trend. In December WPI-based inflation stood at (-)0.73%, while retail inflation was at 5.61%.

RBI is scheduled to announce its sixth bimonthly monetary policy review on Tuesday, February 2.

As per the DBS report, "the of India meets next on February 2 and we expect the benchmark rates to be kept on hold."

The or the short-term lending rate at which borrow from RBI came down to 6.75%. In the last calender year, RBI reduced key policy rates by 1.25 percentage points.

HSBC said it expects RBI to maintain status quo in the forthcoming policy review and wait for the fiscal roadmap presented in the Budget.

"The current instability in markets and insufficient transmission (by banks) are further reasons why the RBI may not rush to cut the rate on February 2," HSBC said.

The RBI is most likely to achieve its January 2016 target of having inflation under the 6% mark, but is committed to getting the headline number down to 4% in two years from now.

Global financial services major Barclays said that the central bank is likely to go for a cut in policy rate during the April-June period of the year.

RBI is expected to leave all benchmark rates unchanged in its policy review meet on February 2 but it is likely to maintain a dovish stance.

However, BofA Merrill Lynch Global Research said it "continue to expect" the RBI to cut the key policy rate by 25 basis points in the February policy review.

"We continue to expect a final 25 bps RBI rate cut on February 2. That said, the RBI is approaching the end of its rate cutting cycle. The rate, at 6.5% then, would be well below the average inflation rate of 7% (using it as proxy for inflation expectations)," it said.

First Published: Sun, January 31 2016. 11:22 IST

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