‘RBI may not reduce key rates in Jan policy review’

‘RBI may not reduce key rates in Jan policy review’
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First Published: Fri, Jan 16 2009. 01 59 PM IST
Updated: Fri, Jan 16 2009. 01 59 PM IST
New Delhi: The Reserve Bank of India is unlikely to again cut key interest rates at its policy review later this month, a senior finance ministry official said on Friday, sending bond yields higher.
The Reserve Bank of India (RBI) has slashed 350 basis points from its key lending rate and sharply cut others since October in a bid to bolster slowing growth in Asia’s third-largest economy.
“I don’t expect any cut in key interest rates by RBI,” the official, who did not wish to be named, told reporters on the sidelines of a business conference.
Bond yields rebounded after the comments, with the 10-year benchmark paper adding nine basis points to 5.55%, matching Thursday’s close.
The central bank is scheduled to hold its next policy review on 27 January, and analysts are divided over the likely outcome.
Sonal Varma, Nomura’s India economist, expected a 50 basis points cut in the main lending rate, the repo, at the review to boost demand and lift sagging growth.
“We require a period of low real interest rates to create conditions where demand can start picking up,” Varma said, forecasting a total cut to the repo of 150 basis points by June.
Inflation has fallen rapidly in recent weeks and was running at 5.24% in early January, a shadow of the near 13% seen in August after sharp rises in prices of oil and other basic commodities.
Analysts expect it to drop to around 1-2% by March, giving the central bank room to lower rates further, following up on four aggressive moves in as many months.
But other economists have said the bank may want to assess the impact of previous monetary easing -- which works with a lag -- before acting again.
Inflation is well below the RBI’s target of 7% for the fiscal year to end March.
After three years of 9% growth, analysts and government officials expect the global slowdown and tight, expensive credit at home to lower expansion to about 7% this year.
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First Published: Fri, Jan 16 2009. 01 59 PM IST
More Topics: RBI | Rate cuts | CRR | Repo rate | Reverse repo rate |