New Delhi : With inflation still high, the Reserve Bank at its fourth bi-monthly policy review Tuesday is unlikely to cut interest rates, Care Rating has said in a report.
“Given the economic parameters of improving growth of 5.7 percent (Q1 FY15) GDP and elevated retail inflation on the back of potential threats to inflation going ahead, we do not foresee any room for a rate cut in the upcoming policy announcement,” the ratings agency said ahead of the RBI’s policy review scheduled Sep 30.
Consumer price index (CPI) based retail inflation eased to 7.8 percent in August from 8.59 percent in April. Wholesale price index (WPI) inflation has also eased to 3.74 percent in August from 5.55 percent at the start of the current fiscal.
The RBI headed by the monetarist-inclined Governor Raghuram Rajan has set a target for CPI inflation at 8 percent by January 15 and 6 percent by January 2016.
The RBI left key interest rates unchanged in its third bi-monthly monetary policy review early August, saying near-term tightening is not expected if inflation continues to ease.
“Reserve Bank will continue to monitor inflation developments closely, and remains committed to the disinflationary path of taking Consumer Price Index (CPI) inflation to 8 per cent by January 2015 and 6 per cent by January 2016,” Governor Rajan had said in his policy statement.
“While inflation at around 8 per cent in early 2015 seems likely, it is critical that the disinflationary process is sustained over the medium-term,” Rajan said.
The repo rate, or the interest that banks pay when they borrow money from the RBI to meet their short-term fund requirements, was left unchanged at 8 percent.
The reverse repo rate, or the interest that the RBI pays to commercial banks when they park their surplus short-term funds with the central bank, had been adjusted to 7 percent.
The Cash Reserve Ratio (CRR) was left unchanged at 4 percent. The marginal standing facility rate and the Bank Rate were also kept unchanged at 9 percent.
The statutory liquidity ratio (SLR), the mandatory amount of bonds lenders must keep with the RBI, was cut by 0.5 percent to 22.0 percent of their net demand and time liabilities (NDTL) with effect from August 9, 2014.
Care Rating said the RBI may not cut SLR Tuesday, but even such a cut would not come as a surprise.
“It (SLR cut) could probably be a part of the long term goal of lowering the SLR rather than a short term measure,” the agency said.
Indian Banks Association chief executive M.V.Tanksale said there was no need for an SLR cut because credit pick-up was slow and there was also no urgent need of liquidity.