Asia > Southern Asia > India > Bankers expect the RBI to maintain status quo on rates at the monetary policy

India: Bankers expect the RBI to maintain status quo on rates at the monetary policy


Bankers expect the Reserve Bank of India (RBI) to maintain status quo on rates at the monetary policy review on Tuesday as retail inflation is yet to show signs of slowing down. The RBI has been tracking consumer price inflation closely and, according to the report of a committee headed by deputy governor Urjit Patel, it is targeting to bring consumer price index (CPI) inflation down to 8% by the end of January 2015 and 6% by January 2016.

Bankers point out that since the CPI hit a three-month high in April, RBI is likely to keep policy rates on hold. “Except for the sentiment, nothing has changed yet and, so, we think RBI will not opt for changes in policy rates,” said RK Dubey, chairman & managing director, Canara Bank.

Retail inflation hit a high of 11.16% in November last year and stood at 8.59% in April, driven by higher food prices.

“The market is not expecting any change in policy rates and the April CPI data is the main reason,” said Arun Kaul, chairman & managing director, UCO Bank.

In the April policy, RBI had said that

there are risks to the central forecast of

8% CPI inflation by January 2015 due to a less-than-normal monsoon.

“The Reserve Bank of India has reiterated that inflation control was a priority and the bank will also attempt to balance growth-inflation objectives. We look for the repo to be left unchanged next week,” DBS Bank India said in a note. RBI governor Raghuram Rajan has raised the key repo rate thrice since taking over the reins of the apex bank in September, 2013. In January, the repo rate hike was seen as a surprise move as the market was expecting a pause.

“We note that the RBI is unlikely to cut policy rates in FY 2015, given high CPI inflation through FY15,” a recent report by Kotak Institutional Securities said. However, in April, RBI had kept the rates on hold and indicated that RBI will keep rates steady in the near term if inflation eases towards its targeted level. “I do not expect change in rates from RBI as inflation is still not at its comfort level,” said MS Raghavan, chairman & managing director, IDBI Bank.

Foreign brokerage Barclays expects that going forward inflation could moderate, which should lead to easing of interest rate by the central bank. “With favourable government policies, we expect an improvement in sentiment that could lead to the beginning of the next growth cycle in India,” Barclays said in a note last week.

Related Articles
  • "Spillovers from Dollar Appreciation," contained other warnings for India.

    2015/08/03 The International Monetary Fund (IMF) recently conducted stress tests to model what result an appreciation in the price of the US dollar would have on economies around the world. In a somewhat surprising turn, those who fared worst in a world with a additional precious dollar were not exporters of goods to America or nations dependent on US goods, but rather, Indian businesses. The reason, according to the statement, was a possible worsening of borrowing costs and earnings. Troubling news for Indian businesses, as the dollar has been on a sustained track of appreciation.
  • Former Indian president and scientist Abdul Kalam passes on to 'island of peace'

    2015/07/28 India's former president and top scientist A P J Abdul Kalam, called as the country's "missile man" passed away on Monday (27 July) at 6.30 pm local time, doing what he liked best -- talking to students. He was 83. Kalam collapsed two minutes into a lecture at a management institute in the north-eastern Indian city of Shillong and was declared dead on arrival at a nearby hospital.
  • Is Narendra Modi, India’s New Prime Minister, Israel’s New Best Friend?

    2015/06/06 Israelis who have met Narendra Modi, India’s newly elected prime minister-designate, gush about him and what he means for Israel. At a recent event at the Institute for National Security Studies, in Tel Aviv, he was described in glowing terms: “outgoing”; “assertive”; “extremely, extremely clever”; and “very tachles, very direct, very Israeli.” Part the calls Modi received congratulating him on his win last week was one from Israeli Prime Minister Benjamin Netanyahu, who told his cabinet at their weekly conference that Modi had replied by expressing the desire to “deepen and develop economic ties with the national of Israel.”
  • How to heat up lukewarm India–China relations

    2015/05/16 The relationship between China and India will be one of the majority significant of this century. Their ability to cooperate will be crucial on international issues ranging from climate change to multilateral trade negotiations. From presently on for all of its next significance, the relationship remains shallow, unbalanced and stuck in the completed. As Narendra Modi visits Beijing this week, there are signs of change but evolution will likely be slow, piecemeal and pragmatic. India's Prime Minister Narendra Modi receives a floral bouquet from a young Chinese child on his arrival at Xi’an Xiangyang International Airport in Xi’an, 14 May 2015. Gradually and from a low base, India is creeping up Beijing’s inventory of diplomatic priorities. Li Keqiang’s initial foreign visit next becoming premier in 2013 was to India and Modi’s trip to China this week follows a highly-publicised India trip undertaken by Xi Jinping in September 2014.
  • Russia invites Greece to join BRICS bank

    2015/05/13 Greece has been invited by Russia to become the sixth member of the BRICS New Development Bank (NDB). The $100 billion NDB is expected to compete with Western dominance and become one of the key lending institutions. The invitation was made by Russian Deputy Finance Minister Sergey Storchak on Monday during a phone conversation with Greek Prime Minister Alexis Tsipras, according to a statement on Greece's Syriza party website. Tsipras thanked Storchak, who’s currently a representative of the BRICS Bank for the invitation, and said Greece was interested in the offer.