RBI’s First Monetary Policy Review of Fiscal on Tuesday
The Reserve Bank of India (RBI) is to announce its first bi-monthly monetary policy review of the current fiscal on Tuesday, when it is widely expected to leave the repo rate, at which it lends to commercial banks, unchanged at 7.50 percent.
“Not expecting any rate cuts this time, not for another one or two months,” Vinod Nair, head of fundamental research at Geojit BNP Paribas Financial Services, told in Mumbai.
“It is very difficult this time with retail inflation increasing. The RBI would also like to look at the public sector banks’ distressed loans restructuring issues during the last quarter,” he added.
Nair also noted that the RBI was waiting to see the impact of a possible hike in US interest rates by the Federal Reserve in early June, though even that appears less likely.
Meanwhile, industry chamber FICCI said on Sunday that any cut in interest rates would not be “adequate to stimulate investment in manufacturing” given the lack of “significant change in demand conditions”.
The Federation of Indian Chambers of Commerce and Industry (FICCI), in its latest quarterly survey, said 69 percent of respondents do not foresee any substantial increase in investments by their organisation as a result of rate reduction by the RBI.
Tuesday’s scheduled review, coming after the first full budget presented by Finance Minister Arun Jaitley proposing changes in the RBI Act, follows two previous unscheduled rate cuts since January which brought the repo rate down from 8 percent by 50 basis points to the existing one. The interest rate cuts this year came after nearly two years.
Announcing the rate cut in January, RBI Governor Raghuram Rajan said: “The key to further easing are data that confirm continuing disinflationary pressures and sustained high quality fiscal consolidation.”
The consumer price index (CPI)-based inflation rose to 5.37 percent for February, from 5.19 percent in January and 4.28 percent in December 2014.
Moreover, Jaitley has extended the target deadline for controlling fiscal deficit to three percent, reasoning that insistence on a timetable to contain the deficit would harm growth prospects.
In his budget, the finance minister announced that the government would sign the Monetary Policy Framework Agreement with the RBI for controlling inflation, which will become a law providing for a monetary policy committee.
With these major changes in the RBI, the monetary policy committee will reduce the governor’s power to act alone.
The government has also proposed to amend the RBI Act to take away money market regulatory powers from the central bank and bring it under the purview of the market regulator, Securities and Exchange Board of India (SEBI). (IANS)