Hold policy rates

Four reasons why RBI governor Raghuram Rajan should not cut interest rates this week


There are four reasons why Raghuram Rajan should not cut interest rates this week.

First, the latest national income data shows that economic growth in the March quarter was stronger than expected.

Second, consumer price inflation seems to have bottomed out for now, while wholesale prices are finally out of deflation territory. The former is still 40 basis points above the January 2017 target of 5%.

Third, the rally in global oil prices since January needs to be watched closely even though the price rise may not sustain.

Fourth, the latest US labour market data may have reduced the chances of a Fed rate hike, but the Brexit referendum could create financial volatility.

The initial forecast that India could have a good monsoon after two years of drought is a positive, as far as food prices go. Consumer confidence also seems to be recovering. But the Indian central bank should wait for a few more months before making its next move.