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RBI may leave rates untouched, view experts
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SME Times News Bureau | 26 Sep, 2020
Persistently high
inflation fanned in part due to supply side disruptions along with
seasonal factors will deter the Reserve Bank to administer a dose of
lending rate cut during the upcoming monetary policy review.
In a
poll conducted by IANS, economist and industry experts cited elevated
inflation level as a key determinant for a pause in policy easing.
Notably, the expected move comes at a time when industrial output is at historic low due to the Covid-19 pandemic.
A
policy easing, if administered, would have theoretically allowed
commercial banks to reduce their lending rates thereby helping both
consumers and the industry to get cheaper finance.
Subsequently,
the increased money flow in the hands of consumers would have helped to
boost demand, and for the industry provided a higher flow of capital
investment on the back of lower cost.
Nonetheless, retail inflation has been at an elevated level during July-August.
"In
view of the retail inflation being higher than RBI's comfort zone for
two consecutive quarters in the past and likelihood of it remaining in
excess of 6 per cent in July-September as well, no rate cut is expected
in the upcoming policy review," Sunil Kumar Sinha, Principal Economist,
India Ratings & Research told IANS.
"But RBI will continue to maintain its accommodative policy stance to signal that policy rates are not going to go up either."
Lately, data showed that India's August retail inflation stood at an elevated level.
The retail or consumer price index stood at 6.69 per cent in August. It had risen to 6.73 per cent in July.
As
per the data, retail inflation level has reached the upper limit of the
medium-term CPI inflation target of 4 per cent. The target is set
within a band of +/- 2 per cent.
"Given the elevated CPI inflation, we expect an extended pause from the MPC," said Aditi Nayar, Principal Economist, ICRA.
The
RBI's MPC (Monetary Policy Committee) is expected to release its
resolution on the monetary policy after their meet on Sep 29th to Oct
1st, 2020.
"We believe that MPC will continue to hold the
interest rates in the near term given the continuing inflationary
concerns," said Suman Chowdhury Chief Analytical Officer at Acuite
Ratings and Research.
"However, the accommodative stance is likely to persist in the face of the ongoing economic contraction."
Besides
inflation, other economic indicators, showed decline in production and
in essence revival of economic growth due to localised lockdowns, supply
chain disruptions and lack of labour supply.
"Our inflation
trajectory suggests that technically the next opportune time to cut may
not come before end-3QFY21," said Madhavi Arora, Lead Economist, FX and
Rates for Edelweiss Securities.
"However, the modest reduction in
July and August CPI inflation will provide some comfort for the RBI.
We maintain the depth of ongoing fall in demand is not yet reflected
accurately in inflation, and as it starts to percolate in data and as
supply normalise progressively, headline CPI inflation will likely
moderate towards 4 per cent by end-CY20, admittedly also helped by base
effect."
The August datapoint further showed that India's
consumer food price index had eased a bit to 9.05 per cent against 9.27
per cent reported for July 2020.
On its part, Brickwork Ratings
said: "We expect inflation to remain b elow 6 per cent in Q3FY21 as food
inflation is likely to lower in the wake of abundant harvests."
"The
pandemic is still evolving, and credit offtake, even at a low rate of
interest, looks sticky. With uncertainty regarding the pandemic loom
ing large, the RBI may not provide a GDP forecast for FY21 in the
upcoming MPC meeting. As in the previous statements, the RBI may
continue to talk about economic contraction without quantifying the
magnitude."
Last month, the MPC of the central bank decided to
retain its key short-term lending rate to curb the rise in inflation,
and stabilise the general economic environment.
Even though it
retained the repo rate -- or short-term lending rate for commercial
banks, at 4 per cent, the MPC agreed to maintain the growth-oriented a
ccommodative stance.
Likewise, the reverse repo rate stood
unchanged at 3.35 per cent, and the marginal standing facility (MSF)
rate and the 'Bank Rate' at 4.25 per cent.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
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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