RBI May Go For Rate Cut Next Time

Mumbai: The Reserve Bank of India (RBI) is likely to wait for yet another MPC meeting that’s due in December which also marks the end of the current tenure of its Governor Dr Shaktikanta Das, for taking any major decision on interest rate cut.

The three-day bi-monthly Monetary Policy Committee (MPC) meeting began on Monday and policy decision will be announced on Wednesday. Talking to Bizz Buzz, M Narendra, the former chairman & managing director, Indian Overseas Bank (IOB), said: “Even though lot of success has been achieved in taming headline inflation and the same is below RBI target of four per cent, RBI may not change the repo rate this time and may continue to opt for pause as RBI needs to get further confidence as to achieving inflation target on a sustainable and durable basis.”

Even though lot of success has been achieved in taming headline inflation and the same is below RBI target of four per cent, RBI may not change the repo rate this time and may continue to opt for pause as RBI needs to get further confidence as to achieving inflation target on a sustainable and durable basis, he said.

The food inflation may be moderated with the favourable monsoon and likely good agriculture production. Some expect that RBI may change the stance from withdrawal of accommodation to neutral. When US Fed has started the process of cutting interest rates with more than 50-basis-point reduction, RBI has maintained that the monetary policy in India will be based on domestic consideration and need not be guided by external central banks’ moves.

MV Hariharan, ex-treasury head, SBI says: “Any expectations of RBI cutting rates in the fast- evolving realities of today, are misplaced and impractically optimistic.”

Apart from oil prices now ignited by the Middle East flare up, which look to be front and centre for quite some time, vegetable prices inflation continues to be sticky and worrisome due to the erratic distribution of the monsoon. Climate change too is a very important factor in this discussion, he added.

According to Hariharan, “in my opinion, RBI will be loath to give up the hard work that it has put in with its very prudent policy moves. Exchange rates too are being managed adroitly. The festival season will increase the clamour for cuts to inject the eternally sought ‘feel good’ momentum. In the volatility of geopolitics, the country’s relative stability must work in the vox populi realising this.”

A section of experts feel that RBI may take a cue from the recent 50 bps rate-cut by Fed.

Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors, said: “After a jumbo rate cut by Fed in its last meeting, speculations are on about a 25-bps rate cut by RBI in its policy meeting.”

A cut in repo rate will give the Indian economy a boost so that it can grow at a rate greater than seven per cent. Favourable monsoon and bountiful crops in the Kharif season will put more money in the hands of the farmers. This will lead to increase in consumer spending. A cut in repo rate could spur private investment and jobs. The new members in the MPC have been already appointed by the central government who will now contribute to shaping to India’s monetary policies.

However, the RBI Governor has in his earlier interviews said that the MPC would decide its rate cut measures, taking domestic conditions into account. It is to be seen whether RBI will at least change its stance from withdrawal of accommodation to neutral.

So, RBI may not change its course and should keep the repo rate at 6.5 per cent.