RBI more likely to cut rates in Sept, GDP growth steady

The Pak Banker - - COMPANIES/BOSS -

There is a bet­ter than even chance that the Re­serve Bank of In­dia (RBI) will cut in­ter­est rates at its pol­icy meet­ing on Sept. 29 thanks to in­fla­tion strik­ing a record low, ac­cord­ing to a poll, mark­ing a shift in ex­pec­ta­tions from ear­lier. The me­dian from sur­vey of 21 econ­o­mists showed a 60 per­cent chance that the cen­tral bank would cut its pol­icy repo rate from 7.25 per­cent at the next meet­ing, whereas a pre­vi­ous poll in July had shown a move was more likely in the fi­nal three months of the year.

Since then, In­dia has re­leased con­sumer price data for July that showed re­tail in­fla­tion at a record low of 3.78 per­cent, giv­ing the RBI more room to ease pol­icy. Keen to in­ject more mo­men­tum in the econ­omy and en­cour­age in­vest­ment, the gov­ern­ment and busi­ness com­mu­nity have urged the cen­tral bank to lower in­ter­est rates, though RBI Gover­nor Raghu­ram Ra­jan has stressed that he wants to see low in­fla­tion on a sus­tained ba­sis. "We have fuel dis­in­fla­tion mak­ing a come­back all over again. Crude prices are back down," said Vishnu Varathan, se­nior economist at Mizuho Bank.

Varathan noted the price of onions, a sta­ple in­gre­di­ent in In­dian cook­ing, was be­gin­ning to rise, putting up­ward pres­sure on food in­fla­tion.

But, he said the RBI would find it harder to cut in­ter­est rates later in the year, if the U.S. Fed­eral Re­serve de­lays rais­ing in­ter­est rates, which it is ex­pected to do. The RBI left in­ter­est rates un­changed at its last pol­icy re­view on Aug.4, hav­ing al­ready cut them by 75 ba­sis points this year as a slump in global com­mod­ity prices brought in­fla­tion un­der con­trol. By hold­ing rates steady, Ra­jan went against the ma­jor­ity on an ad­vi­sory panel, who had rec­om­mended a re­duc­tion.

In­dia is due to re­lease eco­nomic growth data for the April-June quar­ter on Mon­day. The me­dian forecast given by 27 econ­o­mists put year-on-year growth at 7.4 per­cent for the quar­ter, slow­ing from 7.5 per­cent in the Jan­uary-March pe­riod. Whereas the head­line fig­ure looks healthy, many econ­o­mists have treated the data se­ries with cau­tion since the sta­tis­tics depart­ment re­vised its method­ol­ogy for mea­sur­ing gross do­mes­tic prod­uct ear­lier this year.

Other in­di­ca­tors and on- the­ground ev­i­dence sug­gest the econ­omy is strug­gling, and there is grow­ing im­pa­tience with Prime Min­is­ter Naren­dra Modi's gov­ern­ment to im­ple­ment more poli­cies that can gal­vanise growth. The gov­ern­ment is try­ing to in­tro­duce a na­tion­wide goods and ser­vices tax to cre­ate a more uni­fied mar­ket in a coun­try where levies can dif­fer from state to state.

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