RBI faces tough choice on rate front on Tuesday

RBI faces tough choice on rate front on Tuesday

 With retail inflation showing no signs of abating, RBI faces tough choice on cutting rate a second time this fiscal to meet government and industry expectations of lowering cost of borrowing to boost growth.

Most bankers and experts believe the possibility of an interest rate cut by the Reserve Bank on August 4 is very low as retail inflation remains high. However, India Inc is pitching for a rate cut because of low wholesale inflation and slowdown in industrial growth. Even the government wants the benchmark rate to be cut to prop up growth.

“I am not expecting any rate cut,” SBI Chairperson Arundhati Bhattacharya said.
“WPI is (negative) but CPI has gone up a little. Though it is mainly on account of food prices. The RBI has been benchmarking it to the CPI numbers, I think it is unlikely,” she added.

While retail inflation in June rose to an eight-month high of 5.4 per cent, the overall Wholesale Price Index (WPI) based inflation was (-)2.4 per cent in the same month.
RBI mostly tracks the consumer price inflation for its monetary policy decision.

“It would be a status quo. I don’t think there has been much change in the macroeconomic conditions from the last policy. RBI is closely monitoring monsoon. Nothing indicates that it is a good or a bad monsoon,” Bank of Baroda MD and CEO Ranjan Dhawan said.

Some bankers are of the view that there is a scope for further rate cut by RBI, but if it accommodate in this policy is something in the realm of speculation.

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