Rate cut hopes

With govt regulating interest rates of small savings schemes, the hope on the Street now is that RBI will cut rates in the monetary policy review on 5 April


Raghuram Rajan, governor of the Reserve Bank of India. Photo: Abhijit Bhatlekar/Mint
Raghuram Rajan, governor of the Reserve Bank of India. Photo: Abhijit Bhatlekar/Mint

As many would have expected, both bond and stock markets in India started the trading week on a positive note. And financial markets had reasons to cheer. After the government decided to stick to the predetermined fiscal consolidation path in the budget, last week it also reduced the administered rate of interest on various small savings schemes. Rates will now be adjusted on a quarterly basis and are likely to facilitate better transmission of monetary policy as they will reduce fear among bankers of losing deposits to such schemes.

The hope on the Street now is that the Reserve Bank will cut rates in the upcoming policy review on 5 April. In fact, some analysts are expecting a deeper 50 basis point cut in policy rates. It will be interesting to see how the central bank is reading the evolving situation which will determine the possibility of rate cuts. While government action has been supportive, oil prices have seen a recent uptick, and core inflation continues to remain sticky.