RBI May Keep Policy Rate unchanged in upcoming Monetary Policy

HYDERABAD: The Reserve Bank of India (RBI) may keep policy rates on hold in its upcoming monetary policy review on Tuesday.Inflation, based on the Wholesale Price Index, fell to a 5-year low of 1.77 per cent in October driven by softening prices of fuel and food items, while Consumer Price Index, eased to 5.52 per cent at the end of October, thus reviving hopes of a revision in interest rates.

“We believe that the RBI is likely to keep policy rates on hold on December 2. We assign a very low probability to a rate cut in that meeting,” said Morgan Stanley in its latest report.

Similarly, Care Ratings said Rajan maintain status quo on rates, even though inflation is trending down. “While a rate cut would help to assuage sentiment, the RBI may choose to defer the decision for the next review.” Repo rate, at which RBI lends to banks for short period, is at 8 per cent, while the reverse repo rate is at 7 per cent. The cash reserve ratio is at 4 per cent.

However, expectations are high that the central bank may revise rates towards the end of current fiscal.

Even the Ministry of Finance and industry have been looking for a rate cut to fuel economic growth. GDP growth slipped to 5.3 per cent in the second quarter of current fiscal.

Likewise, United Bank of India Executive Director Deepak Narang said RBI would wait some time. “Although parameters are conducive for the rate cut but there is hardly any appetite for loan in the market. Rate cut by 0.25% is not going to generate significant demand in the market,” he said.

According to Morgan Stanley, the Reserve Bank’s language regarding its comfort in achieving its inflation target according to its pre-guided glide path, and in turn, the implications of timing of the first rate cut needs to be watched.

Source:Indian express