RBI likely to hold interest rates at Wednesday's review

Feb 08, 2017, 00:45
RBI likely to hold interest rates at Wednesday's review

Ms Forbes said even if the Bank did raise rates, the other measures launched previous year to boost lending to households and businesses would "still leave a substantial amount of monetary support for the economy".

Misra said that the window created by an appreciating rupee in a scenario of narrowing of yield spread on USA treasury and Indian G-Secs will be used by the RBI to lower policy rates so as to create greater room for manoeuvrability.

In Patel's first policy review as RBI Governor in October, which was also the maiden review of the MPC, the repo rate was reduced by 0.25 per cent to 6.25 per cent.

The Reserve Bank of India (RBI) is slated to announce its last bi-monthly policy for the current fiscal on Wednesday.

A survey of economists from 10 banks conducted by the Mint newspaper says that slowing inflation and a fiscally responsible budget could prompt the RBI to cut interest rates.

The industry is expecting at least 50-75 basis points reduction in the policy interest rates and the banks should pass on the entire benefit to the borrowers, it said in a press release.

The Bank of England cut rates to a record low 0.25 percent in August.

Post demonetization, consumption and investment took a hit, bringing retail inflation down to a three-year low of 3.41%.

Finance Minister Arun Jaitley during his Union Budget 2017 speech stated that the fiscal deficit aim for the next fiscal would be 3.2% instead of 3.%. "For the next financial year, the recent uptick in global commodity prices, in particular crude oil prices, pose an upside risk", it said. At the same time, the economic research department of the state-run bank said that RBI would continue its status quo. If oil prices keep inching higher, the RBI may again be confronted with the spectre of inflation, forcing it to hold rates.

"Although the Fed is expected to only gradually raise rates in 2017, pressure on emerging market currencies will remain and we expect the RBI to emphasise this while setting policy", he said. "RBI will want to see the trajectory of the oil prices and food prices in the coming months".

Biswa Swarup Misra, Chief Economist, Bank of Baroda, said the macro configuration is just right for a 25 bps cut in the policy rates as risks to stability have temporarily moderated. "That is a huge spread for the banks which should transmit lower rates without necessarily cutting the time deposit rates", it added.

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