Status quo on rates: Experts

Falling inflation rate less likely to matter in deciding policy rates

Status quo on rates: Experts

The Reserve Bank of India (RBI) is likely to maintain status quo in its third quarter monetary policy review on Tuesday despite the clamour for cutting rates to boost sagging growth in view of some moderation in inflation.

“I think status quo will be maintained by the RBI,” Oriental Bank of Commerce CMD S L Bansal said. .

HSBC India country head Naina Lal Kidwai said, “I believe that RBI will keep interest rate unchanged in this policy review. The message to the industry is quite important to make sure that we can get interest rates to at least plateau, if not come down.”

The RBI is scheduled to announce third quarter review of monetary policy on January 28.

According to ICRA managing director Naresh Takkar, it is expected that the apex bank would retain the repo rate in this review even though inflation eased in December.
With inflation easing, there is renewed demand from the industry for a reduction in interest rates.

However, public sector lender State Bank of India, in a report, said, “RBI may keep rates steady in January 2014 review and wait for more information on trajectory of food inflation, before deciding next course of policy action because core inflation has remained more or less flat in December 2013.”

WPI inflation declined to a five-month low of 6.16 per cent in December.  Prices as measured by the Wholesale Price Index, gained at the slowest pace since July 2013, when inflation was 5.8 per cent. In November, WPI increased 7.52 per cent, fastest in 14 months. Retail inflation eased to  3-month low of 9.87 per cent.

However, Planning Commission Deputy Chairman Montek Singh Ahluwalia said
recently that controlling inflation should not be the only target of central banks.

“My feeling is that central banks have to look at multiple targets. Central banks should not look only at inflation target...,” he had said. The central bank had increased key policy rate (repo) twice between September and November to check inflation. It kept policy rates unchanged in its December review on expectations of inflation easing.

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