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RBI unlikely to cut interest rate on June 17: Experts

New Delhi, May 5, 2013 (PTI)
File Image Reuters

The Reserve Bank is not likely to go for further monetary easing in its June 17 policy meet due to upside risks on inflation and current account deficit in the near term, experts say.

On May 3, RBI cut the key interest rate by a meagre 0.25 per cent and kept the cash reserve ratio (CRR) unchanged on concerns of inflation.

"The forward guidance, along with the hawkish language in the annual report released on May 3, suggests to us that the RBI is unlikely to cut again in its June 17 policy meeting," Goldman Sachs Managing Director and Chief India Economist Tushar Poddar said.

He added: "The probability of a cut in July 30 meeting is also only slightly higher than 50 per cent."

While announcing the annual monetary policy on Friday, RBI had said that upside risks to inflation, which cooled to a three-year low in March, "still remain significant" in the near term.

Moreover, it added: "Monetary policy will also have to remain alert to risks on account of the CAD and its financing, which could warrant a swift reversal of the policy stance."

In line with Goldman Sachs view, Nomura India economist Sonal Verma said that even as RBI has cut rates, "its forward guidance continues to be cautious as significant upside risks to inflation, the CAD, and its financing, all limit space for further easing".

Citigroup India Economist Rohini Malkani said: "Going forward, we expect the RBI to ease by a further 50 bps (0.5 per cent) in FY14", but added that from a timing perspective, "we think the rate cuts could be spread out for the rest of the fiscal year and are data dependent".

Experts maintain that monetary policy easing alone would not be able to revive growth numbers as removing supply-side bottlenecks and the government's commitment to fiscal consolidation are also important.


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