RBI begins policy review as govt wants a rate cut

While industry and government want a rate cut, bankers are of the view that it will be difficult for RBI to cut rates due to rising retail inflation

The Monetary Policy Committee headed by RBI governor Urjit Patel started two-day deliberations Tuesday with industry and the government hoping for interest rate cut to spur growth which fell to 3-year low of 5.7 per cent in the June quarter, while experts expect status quo. The fourth bi-monthly monetary policy statement for 2017 -18, to be released on Wednesday, is being keenly awaited by all stakeholders -especially the industry which has been demanding for lower interest rates. Bankers however are of the view that the Reserve Bank of India (RBI) would maintain status quo as inflation has risen.

According to a SBI report, the RBI is likely to maintain status quo on key lending rate in tomorrow's policy review as it is "stuck in a conundrum" of low growth, mild inflation and global uncertainties. It said that against the background of flexible inflation targeting, the obvious question that arises is choosing between moving towards the 4 per cent inflation target swiftly or just staying within the inflation band of plus/minus 2 per cent.

On the other hand, a top finance ministry official said last week that there is scope for an RBI rate cut at the next policy review as retail inflation continues to be low. "There is scope for monetary easing because of inflation projections," the official had said, adding that all the government analysis is made on this basis.