A Rare Consensus That Raghuram Rajan May Not Cut Repo Rate Today
Reserve Bank Governor Raghuram Rajan is likely to hold repo rate steady at 6.75 per cent, when he delivers his monetary policy in a short while from now.
Here are 10 things to know ahead of Dr Rajan’s policy announcement:
1) There’s a consensus among all 45 respondents surveyed by Reuters that Dr Rajan will hold repo rate after easing it by 50 basis points at the last policy review in September.
2) The acceleration in GDP could persuade Dr Rajan to keep interest rates unchanged, analysts say. The domestic economy expanded by 7.4 per cent in the September quarter as compared with 7 per cent in April-June.
3) Economists say the RBI has played its part in boosting economic growth by frontloading rate cuts. This year interest rates have come down by a total of 125 basis points.
4) The responsibility for spurring growth now lies with the government, say economists. “The RBI has done what it can do over the last few months, it is fiscal policy which needs to come into picture now,” said Prashant Sawant, senior economist at Verisk Maplecroft.
5) The recent uptick in retail inflation is another factor that is likely to weigh on Dr Rajan’s decision making. Consumer inflation cooled to record lows earlier this year but crept back to a four-month high of 5 per cent in October.
6) The recently announced Seventh Pay Commission, which has recommended a 24 per cent salary hikes for government employees will be inflationary, analysts say. Potential food price shocks could easily push up consumer price inflation, analysts warned.
7) India will comfortably meet its target of keeping annual consumer inflation to 6 per cent in January, but Dr Rajan is expected to shift focus towards getting it down to around 5 per cent by March 2017, analysts say.
8) The strong possibility of a rate hike by the US Federal Reserve on December 16 is another factor that Dr Rajan is likely to consider. Although India has outperformed other emerging markets over the past two years, the country is not immune to Fed-related worries.
9) Concern about selling by foreign investors sent the rupee to a two-year low on Friday. During November, it lost more than 2 per cent against the US dollar, one of the worst performances in Asia, as foreign investors sold $1.5 billion in bonds and stocks.
10) However, Dr Rajan will likely reiterate an “accommodative” stance in his statement. Though growth has picked up, it is still below the government’s goal of 8 per cent in the current financial year.
Read full article: NDTV
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