Reserve Bank of India (RBI) is expected to leave its key policy rates unchanged, when it reviews its monetary policy as part of its bi-monthly exercise. However, RBI governor, Raghuram Rajan could prepare ground for an easier rate regime by introducing some liquidity enhancing measures.
In the last policy review in June, the RBI retained the policy rate making it the second consecutive time that Governor Rajan kept interest rates unchanged, however the statutory liquidity ratio (SLR), the mandatory amount of bonds lenders must keep with the RBI, was cut by 0.50% to 22.5% of their net demand and time liabilities (NDTL) with effect from June 14. Meanwhile, repo rate remained unchanged at 8%, while Cash reserve ratio (CRR) also was kept unchanged at 4%.
Rajan, so far has raised interest rates three times since he took office in September 2013, even as economic growth slowed to decade-low rates as it set the target of bringing down consumer price inflation to 8% by the end of the fiscal, and to 6% by the next fiscal. As per the latest data, Consumer Price Index (CPI) eased to a 29-month low of 7.31% in June, May IIP quickened to a 19-month high of 4.7% and core sector output rose at its fastest pace in nine months in June, hinting of economic turnaround. Despite this, RBI governor is not expected to slash rates on account of higher food inflation, which remains above the 8% mark.
Besides, India’s central bank also has clearly stated inflation fighting priority, further with the possibility of below-average monsoon, wait and watch approach by Reserve bank of India shouldn’t come as much of surprise.
