RBI likely to cut interest rate by minimum quarter percent

At the new fiscal’s first bi-monthly monetary policy review due on Tuesday, RBI Governor Raghuram Rajan is widely expected to cut interest rate by at least a quarter of a percentage point on the back of the union budget’s fiscal prudence measures, reduction in small savings interest rates and low inflation.

“Though a 25 basis points (bps) rate cut is anticipated by market participants, and few even expect a possibility of a surprise 50 BPS cut as well, thereby setting the tone for the new financial year,” Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS.

At its sixth and the fiscal’s final bi-monthly monetary policy review in February, Reserve Bank of India (RBI) kept its key lending rate unchanged at 6.75 percent.

“The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on inflation,” Rajan said in his policy statement at the time.

The government has cut the small savings interest rate by up to 1.3 percent, facilitating an RBI rate cut.

India’s annual retail inflation eased to 5.18 percent in February from 5.69 percent in the month before even as the 12-month wholesale inflation was in the negative for the 16th straight month, official data showed last month.

Rajan, last month, kept the cards close to his chest on possible easing of monetary policy with rate cuts, but said the government’s decision to stick to its fiscal targets was comforting.

He also said economic recovery in the country was not smooth, particularly after data on index of industrial production (IIP), released by the Central Statistics Office last month, showed India’s factory output had logged a decline in January for the third straight month.

Bansi Madhavani, analyst, India Ratings and Research, told IANS that a cautious assessment of US economic revival prospects in the FOMC (federal open market committee) minutes may push back expectations of a near-term rate hike.

While 25 basis points cut in the interest rates by the RBI in the monetary policy is imminent, the real impact on lending costs will be felt if the apex bank goes for at least a 50 bps cut, says a CEO survey conducted by Assocham ahead of the monetary policy review.

“The RBI has all the building blocks in place to go in for re-aligning the repo rate to 6.25 percent on April 5 when it reviews the credit policy,” Associated Chambers of Commerce and Industry of India (Assocham) said in a statement.

Image – File Photo (IANS)