RBI Begins Two-Day Policy Review: Industry And Government Want Rate Cuts 

RBI Begins Two-Day Policy Review: Industry And Government Want Rate Cuts Reserve Bank of India (PUNIT PARANJPE/AFP/Getty Images)

The Monetary Policy Committee (MPC) headed by Reserve Bank of India (RBI) governor Urjit Patel started two-day deliberations today (3 October) with industry and the government hoping for interest rate cut to spur growth which fell to three-year low of 5.7 per cent in the June quarter, while experts expect status quo.

The fourth bi-monthly monetary policy statement for 2017-18, to be released on Wednesday (4 October), is being keenly awaited by all stakeholders—especially the industry which has been demanding for lower interest rates.

Bankers, however, are of the view that the RBI would maintain status quo as inflation has risen.

According to a State Bank of India (SBI) report, the RBI is likely to maintain status quo on key lending rate in Wednesday’s policy review as it is “stuck in a conundrum” of low growth, mild inflation and global uncertainties.

“We expect the RBI to stay on hold at the upcoming meeting as rising incoming inflation and projections of further acceleration in inflation ahead will mean that there would be limited space for further easing,” Morgan Stanley said in the research note.

On the other hand, a top finance ministry official said, “There is scope for monetary easing because of inflation projections,” adding that all the government analysis is made on the basis of inflation remaining under four per cent in the medium term.

Industry body Assocham has written to the MPC to cut the interest rates at least by 25 basis points, given the challenges being faced by the economy which needs immediate measures for revival of growth. “At least 50 basis points elbow room can be taken with regard to 3.2 per cent fiscal deficit for the current year and the next financial year,” it said.

In its last policy review in August, the RBI reduced the repo rate by 0.25 per cent to six per cent, citing reduction in inflation risks. The rate cut was the first in 10 months and brought policy rates to a near seven-year low. However, retail inflation rose to a five-month high of 3.36 per cent in August due to costlier vegetables and fruits. The consumer price index (CPI) based inflation was 2.36 per cent in July. (PTI)