RBI may maintain status quo tomorrow, wait for cues from Budget 2016-17

Mumbai: Amid rising inflationary pressures, the Reserve Bank of India (RBI) may maintain status quo in the monetary policy review on Tuesday and wait for cues from the Budget that would provide key macroeconomic direction.

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

Budget 2016-17 will be announced by Finance Minister Arun Jaitley on February 29.

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

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

Reserve Bank of India

“Considering the near-term risks on Consumer Price Index (CPI) inflation and the uncertainties around 2016-17 budget, we expect the RBI to leave the rates unchanged until the budget on February 29,” Citigroup said in a research note. Both Wholesale Price Index (WPI) and CPI or retail inflation have been on a rising trend.

In December, WPI-based inflation stood at minus 0.73%, while CPI inflation moved up to 5.61%.

RBI is scheduled to announce its sixth bi-monthly monetary policy review on Tuesday. DBS also expects the benchmark rates to be kept on hold.

The repo or the short-term lending rate at which banks borrow from RBI came down to 6.75%. In the last calendar year, RBI reduced key policy rates by 1.25% 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. However, global financial services major Barclays said the central bank is likely to go for a rate cut during the April-June period of the year.

BofA Merrill Lynch Global Research also said it “continues to expect” the RBI to cut the key policy rate by 25 basis points in the February policy review.


Posted by on February 1, 2016. Filed under Economy. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.