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RBI likely to cut rates on growth concerns
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SME Times News Bureau | 15 Jul, 2020
Higher inflation unlikely to deter the Monetary Policy Committee (MPC)
to hold any further rate that has become important to infuse liquidity
and prop up economic activity dented by Covid-19 pandemic.
According
an analysts, an additional 25-35 bps of repo rate cuts could be
expected from the MPC given the sharp deceleration in growth when it
meets next to take stock of the situation and recommend monetary
actions. Further action remains contingent on the evolution of the
growth-inflation mix, Kotak Institutional Equities said in a report.
The
MPC decision on further rate cuts to prop up growth would, however, be
weighted against a still high CPI inflation that remains above the MPC's
upper limit of 6 per cent. But much of inflation is on account of
higher fuel and gold prices while food inflation has started to
normalize with the easing of supply disruptions.
With inflation
expected to moderate below 4 per cent in 2HFY21, we continue to expect
additional 25-35 bps of repo rate cuts given the sharp deceleration in
growth and to address the issue of demand shock, the brokerage said in
its report on the state of the economy.
Along with rate cut,
other liquidity and regulatory measures can also be expected from the
MPC to address any financial sector dislocations, the report said.
But
with MPC front loading the repo rate cuts in anticipation of benign
inflation trajectory in 2HFY21, scope for further aggressive rate cuts
may be limited and would depend on the evolution of growth and
inflation.
June CPI inflation moderated to 6.09 per cent as
against 6.27 per cent in May amid favorable base effects despite
increasing momentum.
The softening was led by lower food
inflation of 7.9 per cent (9.2 per cent in May) owing to moderation
observed across vegetables (1.9 per cent from 5.5 per cent in May),
fruits ((-)0.7 per cent from 2 per cent in May), and sugar and
confectionary (4.4 per cent from 6 per cent in May) (Exhibit 2).
Price
of pulses, milk and eggs remain firm, even though the pace somewhat
moderated. Meanwhile, fuel and light inflation rose to 2.7 per cent (1.6
per cent in May).
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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