Comments
With a mounting chorus of powerful voices demanding a deep cut in policy rates from the Reserve Bank of India, the market is betting on Governor Raghuram Rajan obliging with a small 25 basis point cut in his fourth bi-monthly monetary policy announcement on Tuesday.
If Chief Economic Advisor Arvind Subramanian hinted to the RBI earlier this month to cut rates to ward off deflation, Arvind Panagariya, Vice-Chairman of NITI Aayog, on Monday pitched for a 50-100 basis point cut in rates. Industry lobbies have also ratcheted up the pressure on the central bank to cut rates to stimulate investment and growth as inflation, at 3.66 per cent in August, is now well below the RBI’s target of 6 per cent by January 2016.
The markets are also worried that the window for the RBI to cut rates might be narrow as the US Federal Reserve might reverse the rate cycle as early as December 2015, if the comments of Governors from some State branches of the Fed are any indication.
The Finance Ministry has made no secret of its desire to see a deep cut in rates by the RBI to bolster growth, which, at 7 per cent in the first quarter, was lower than the 7.5 per cent growth seen in the preceding quarter. If the central bank does cut the rate, it would be its fourth this calendar year. Currently, the repo rate is at 7.25 per cent.
Slowing industrial output The cumulative growth in the Index of Industrial Production in the period April-July was a shade lower at 3.5 per cent compared with 3.6 per cent in the year-ago period.
The retail inflation gauge could provide some comfort to the RBI to go in for a rate cut but as Rajan pointed out recently, the lower inflation print can be traced to the base effect.
The August CPI inflation print of 3.66 per cent was much lower than 7.03 per cent recorded in same month last year.
Nomura research analysts Sonal Varma and Neha Saraf, in a report, said after a 25 basis point rate cut at its September 29 policy meeting, they expect the RBI to stay on hold through end-2016.
“In our view, policy rates in India have reached neutral levels and — bar any unforeseen shocks — we believe this should be the last rate cut.
“Beyond that, any room to ease monetary policy further would only become available if government action lifts potential growth and if there is visibility on a sustained disinflation, which requires lowering households’ inflation expectations,” the report said.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.