What now from RBI?
The central bank may reduce the cash reserve ratio to goad banks to cut lending rates
Raghuram Rajan has already cut interest rates twice this year. His actions in January and March were outside the scheduled policy calendar. It is no surprise that few expect another rate cut when the Reserve Bank of India (RBI) governor announces his next monetary policy on Tuesday.
It is not just a question of a third rate cut in a row. The most recent data shows that food inflation has reared its head again. Rural wage growth has also picked up. These will have to be watched. There is no doubt that India is in a monetary-easing cycle. Wholesale prices are in deflation territory while consumer price inflation will be well within the target for January 2016. The relative strength of the rupee is also an argument in favour of a rate cut. But the financial markets may have to wait till June, at the very least.
So will it be status quo this week? Perhaps not. The central bank may reduce the cash reserve ratio to goad banks to cut lending rates.
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