RBI may hold rates to check inflationary pressures

Jaswinder Singh Baidwan

Akhran da mureed
Staff member
Amid rising inflationary pressures, RBI may maintain status quo in the monetary policy review tomorrow 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 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 be apparent after the Budget. Once the Budget points on fiscal achievement those are hardwired, then there is compelling case for RBI to cut rate,” Yes Bank managing director Rana Kapoor said.
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.
“Considering the near-term risks on 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 WPI and retail inflation have been on a rising trend. In December, WPI-based inflation stood at (-) 0.73%, while retail inflation moved up to 5.61%.
RBI is scheduled to announce its sixth bimonthly 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%.
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 per cent 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.