In line
with analysts’ estimates, the Reserve Bank of India refrained from lowering
policy rates in its second bi-monthly monetary
policy meet on
Tuesday. The central bank retained the repo or the repurchase rate at 6.50% on
the back of higher food inflation and amid expectations of a rate action by the
US Federal Reserve. Since the rate-easing cycle began in January 2015, the RBI has
reduced policy rates by 150 basis points.
One basis
point is one hundredth of a percentage point.
The
Reserve Bank continued to maintain an accommodative stance and said if all goes
well and there is a fall in food inflation, the RBI will be willing to lower
rates further.
Analysts expect
the RBI Governor to lower rates on August 9, after getting a clearer picture on
monsoon. With predictions of above normal rainfall, Rajan may also not have to
worry about RBI’s FY17 growth guidance of 7.6%. India’s GDP grew at 7.9% in the
fourth quarter of FY16 and full-year growth came in at 7.6%.
The move
or the lack of it was largely expected with CPI, or consumer price inflation,
coming in at a higher 5.4% in April from 4.8% in March, primarily on the back
of food inflation. Wholesale price index, or WPI, too came in at 0.3% in April,
after being in the negative territory for 17 consecutive months, though this
may not have been a deciding factor for the RBI.
Added to
this, the market was expecting the US Federal
Reserve to raise
rates during its June 14-15 meeting. However, Friday’s weaker-than-expected
jobs data (US) may result in Janet
Yellen not
raising rates until further indication that the US economy can remain or stay
on track.
*source: Business Standard
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