The Raghuram Rajan led Reserve Bank of India (RBI) has kept repo rate unchanged and the CRR steady too, thereby disappointing those who sought a cut to get relief from their EMIs. RBI indicates more accommodative policy stance going forward, based on macro-economic data. RBI sees retail inflation stabilising at 5-5.5% in FY16. Earlier in the day, it was expected RBI would keep its benchmark interest rate on hold at 7.50 percent at a policy review on Tuesday, while signalling that it could act swiftly to lower rates further if inflation stays within its target. This year, the RBI has already cut the repo rate twice, by 25 basis points each time, in a bid to bolster economic growth. Neither reduction took place during a regular policy review. “Having cut rates in mid-March and mid-January, a pause may be warranted to reassess the outlook on inflation,” said Gaurav Kapur, senior economist at Royal Bank of Scotland in Mumbai. The consumer price index rose 5.37 percent in February, marking a fifth consecutive month of staying within the RBI’s target of 2 to 6 percent.
Earlier-than-expected rainfall in parts of the country have pushed up prices of winter crops, such as wheat and pulses, which could make the RBI cautious over the outlook for inflation. The RBI’s wariness will also be heightened by any rebound in crude oil prices due to tensions in the Middle East. Only nine of the 40 economists surveyed by Reuters expect the RBI to cut rates on Tuesday, but most expect at least a 25 bps cut by the end of June. Those analysts reckoning on a rate cut later this month, instead of at a policy review in June, are expecting inflation to remain within target when the next data is released on April 13. Beyond the outlook for inflation, the RBI has also made rate cuts contingent on Prime Minister Narendra Modi’s government containing its fiscal deficit and passing economic reforms. Lower Indian interest rates would help stop the rupee from strengthening further against other currencies whose central banks are cutting interest rates.
