If you have a home loan, plan to buy a car or need more funds to add capacities in your factory, you would probably be keenly following what the Reserve Bank of India (RBI) announces on Tuesday.
RBI governor Urjit Patel will present his maiden monetary policy review amid mixed signals from the broader economy.
Unlike his predecessor Raghuram Rajan who had the final say on interest rate cut decisions, Patel will have to go by the advice of a newly set up six-member monetary policy committee (MPC).
Patel will be the first governor to oversee interest rate decisions by the MPC. It would be announced in the afternoon at 2.30 pm against the current practice of 11 am.
Since January last year, the RBI has cut the repo rate—the rate at which RBI lends to banks—five times. India’s retail inflation has touched a five-month low of 5.05 percent in August, triggering hopes of a rate cut. The RBI and the government have set a retail inflation target of 4 percent for the next five years with an upper tolerance level of 6 percent and lower limit of 2 percent.
Most analysts expect a status quo on rates. “
- Expectation is that there is a 70 percent chance of the benchmark policy rates being retained at current levels, while there is 30 percent chance that there could be rate cut of 25 basis points,” CARE Ratings, a ratings firm, said in a research report.
- “The RBI might chose to wait for some more time before wielding the knife,” CRISIL, a ratings firm, said in recent report. Some markers, however, indicate that the Indian economy continues to be characterised by industrial deceleration.
- Factory output contracted (-)2.4 percent in July, driven down by falling manufacturing sector growth that fell (-)3.4 percent, suggesting an uneven recovery in the broader economy. Bank deposits have grown marginally this year, but loan offtake has been crawling, implying companies aren’t investing fast enough to borrow more. In the current financial year, bank deposits have grown by 5 percent compared with 4.4 percent last year, but bank credit has barely risen at 0.8 percent against 2.3 percent during April-September last year.
