By IANS,
Mumbai : Amid signs of a robust industrial revival and a let up in inflation, India’s central bank will review its credit policy for this fiscal Thursday, with the corporate sector hoping that the interest rates will stay unaltered.
The mid-cycle review will be the first since the last quarterly review of the monetary policy July 27. The Reserve Bank of India (RBI) Governor, D. Subbarao, had then said the apex bank would hereafter conduct a review, roughly one-and-a-half months after each quarterly review.
Subbarao had said such formal mid-cycle announcements would take out the surprise element emanating from an off-cycle rate decision as was the case earlier.
Thursday’s review comes against the backdrop of a 63-percent jump in the output of capital goods, which pushed India’s industrial growth up by 13.8 percent in July, as against 7.1 percent in the previous month.
The annual rate of inflation based on wholesale prices has also declined to 8.51 percent in August from 9.78 percent in the previous month.
Bankers, however, say the RBI will not make any changes to the key interest rates, given the tight liquidity.
The country’s largest bank, SBI, expects RBI to keep its key short-term rates untouched in the mid-quarter review.
“It might be status quo,” said O.P. Bhatt, chairman SBI.
Global investment bank Nomura said with monetary conditions tightening and global demand still sluggish, “we retain our view that growth and inflation are likely to moderate in the coming quarters and that the RBI is close to pausing in its rate hiking cycle.”
But some analysts say the RBI will tinker with the rates.
“At a macro level, an inflation of near 10 percent is still very high and the RBI may not deviate from its ongoing stance of tightening monetary policy in its next review in a couple of days,” said Shanto Ghosh, principal economist, Deloitte in India.
Agrees Ashvin Parekh of consultancy firm Ernst & Young.
“At 13.8 per cent the July IIP numbers are indeed very encouraging. And going by this number, it is very clear that there will surely be an upward correction in the demand for funds in the coming months.
“This in turn will lead the RBI to further hike the repo and reverse repo or short-term lending and borrowing rates by 25 basis points,” said Parkeh, national leader for global financial services, E&Y.
In the previous review, the central bank had stepped up its attack on rising prices a tad more than expected and hiked two key short-term rates, while predicting an eventual increase in interest rates on loans and deposits, and also raising its forecast on inflation and growth.
The repurchase rate was hiked by 25 basis points to 5.75 percent and the reverse repurchase rate by 50 basis points to 4.50 percent with immediate effect.
The review had seen the fourth such rate hike since the apex bank decided to tighten its monetary policy in January — first on Jan 29, followed by another on March 19 and again on July 2 — to rein in inflation, which was in double-digit levels then.
But there are others who think the central bank will defer a rate hike this time.
“The Reserve Bank of India is expected to keep interest rates unchanged as liquidity is pressured with sluggish deposits growth and pick up in credit,” said D.R. Dogra, managing director and chief executive officer of rating agency CARE.
“Even after the unchanged inflation situation in the last two months, a change in the rate may not be necessary presently and most probably would be deferred for subsequent policies. The fact that money supply growth has been lower than last year suggests that demand-pull inflation is not an immediate threat.”