New Delhi: The Reserve Bank might not slash interest rate aggressively as retail price-based inflation is still in double digits, even though the wholesale price index inflation is close to zero, according to Moody’s.
“The RBI is perhaps waiting for consumer price inflation to moderate... RBI (is unlikely to) trim interest rates as deeply as in most other economies,” financial services firm Moody’s economy.com said in a research report.
The RBI is facing strong calls for further monetary easing as the growth momentum is weakening significantly, it said.
It added that the sharp economic slowdown will encourage the RBI to trim the short-term lending (repo) rate to 4% by mid-year.
“The cash reserve ratio may be left on hold until then, as further lowering will do little to boost lending if the current limit is not being tested,” the report said.
Since October, RBI has slashed repo rate by 400 basis points to 5%.
The financial institution sees tough economic conditions in India for the rest of 2009.
“Growth for fiscal 2008-2009 will likely slow to around 6.3%, and expansion in the following year is set to decelerate to around 5%,” it said.
Moody’s added that interest rates in India are high compared with those in the neighbouring economies.
The report added that the sharp slowdown in headline inflation, the wholesale price growth decelerated from almost 13% in August to just above zero in the first half of March, has created ample room for cuts in the repo rate, which now stands at 5%.
However, consumer price growth remained stubbornly strong in double-digit territory and they have direct implications for living conditions.