The Reserve Bank of India (RBI) is expected to keep its benchmark interest rate on hold at 7.50 percent at a policy review on Tuesday, while signalling that it could act swiftly to lower rates further if inflation stays within its target. This year, RBI has already cut the repo rate twice, by 25 basis points each time, in a bid to bolster economic growth. Neither reduction took place during a regular policy review. "Having cut rates in mid-March and mid-January, a pause may be warranted to reassess the outlook on inflation," said Gaurav Kapur, senior economist at Royal Bank of Scotland in Mumbai. The RBI rates on the back of easing inflation. The consumer price index rose 5.37 percent in February, marking a fifth consecutive month of staying within the RBI's target of 2 to 6 percent. Earlier-than-expected rainfall in parts of the country have pushed up prices of winter crops, such as wheat and pulses, which could make the RBI cautious over the outlook for inflation. The RBI's wariness will also be heightened by any rebound in crude oil prices due to tensions in the Middle East. Only nine of the 40 economists surveyed by Reuters expect the RBI to cut rates on Tuesday, but most expect at least a 25 bps cut by the end of June. Those analysts reckoning on a rate cut later this month, instead of at a policy review in June, are expecting inflation to remain within target when the next data is released on April 13. Beyond the outlook for inflation, the RBI has also made rate cuts contingent on Prime Minister Narendra Modi's government containing its fiscal deficit and passing economic reforms. Lower Indian interest rates would help stop the rupee from strengthening further against other currencies whose central banks are cutting interest rates. A surge in foreign investment flows into India has pushed up the rupee, raising worries about sudden, destabilising outflows should the Federal Reserve start raising U.S. interest rates later this year, as is widely expected. Analysts expect any dovish statement from the RBI to be accompanied by more pressure on commercial banks to lower their lending rates. Only a few reduced rates after the previous central bank cuts, raising concerns about the transmission of monetary policy actions to the broader economy. Although markets have speculated that the RBI could cut the cash reserve ratio (CRR) - the portion of deposits that lenders must keep with the central bank - to boost banks lending capacity, few analysts believe the RBI would resort to such a blunt tool. (Reuters)
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With RBI keeping interest rates unchanged, government today said it is looking forward to the central bank to support revival of growth and employment.In a statement, the Finance Ministry said it was encouraging that RBI has taken note of the structural change in the outlook for inflation."The government looks forward to the RBI supporting the revival of growth and employment," the statement said.Referring to the proposed new monetary policy framework, it said in the weeks ahead, government and RBI will work towards it.The framework would "help institutionalise the gains achieved on the inflation front, so as to reduce inflationary expectations and further support the revival of investment and growth", the ministry added.Earlier in the day, RBI Governor Raghuram Rajan said talks with the government have progressed well and the details will be announced soon.The new monetary policy framework involves setting of a formal inflation target and accountability to deliver on the same. The RBI has set the inflation target for January 2016 and beyond at 4 per cent, plus or minus 2 per cent.In its policy review, the RBI said "if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle".RBI today kept interest rates unchanged for fifth time in a row and the repo rate continues to be at 8 per cent while the cash reserve ratio has also been retained at 4 per cent.On the inflation trajectory, Rajan said he expects it to ease further and average at the 6 per cent."Over the next 12-month period, inflation is expected to retain some momentum and hover around 6 per cent, except for seasonal movements, as the disinflation momentum works through," he said after his bi-monthly review of the monetary policy.On her part, SBI Chairperson Arundhati Bhattacharya said that interest rates are likely to remain unchanged after RBI's status quo.ICICI Bank chief Chanda Kochhar said that "the statement that a change in monetary policy stance is likely early next year if the current positive trends continue is very welcome.""The results of government actions to energise investment activity should start playing out in the coming months. As this happens and interest rates moderate, we should see an improvement in growth going forward," she added.Economic growth slowed to 5.3 per cent in the second quarter of current fiscal, from 5.7 per cent recorded in April-June quarter.(PTI)
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Bank transactions are soon expected to replace the barter system in LoC trade between the people of Jammu & Kashmir and the Pakistan Occupied Kashmir (PoK), Minister for Industries and Commerce S.S. Slathia said. "Bank transaction is expected to replace barter system in LoC trade soon. Banking facilities for trade transactions are under active consideration of the External Ministries of both the countries to replace the existing barter system, which is cumbersome for the traders and businessmen," Slathia said at a public meeting in Kesso Manhasan area in Samba district. He also said the huge expenditure incurred on guarding borders could be invested on development and poverty alleviation by both the nations. Slathia said the centre and the state government are keen to restore all trade links with the neighbouring county, adding that state-of-the-art Trade Facilitation Centres (TFCs) at Salamabad, Uri and Chikan-De-Bagh in Poonch are at final stages of construction, costing about Rs 15 crore. He said the revival of trade ties between the two nations is an important Confidence Building Measure (CBM). Slathia hailed the dialogue between India and Pakistan, saying it will prove fruitful for the people of both the countries, especially J&K which will be the first beneficiary of peace and tranquillity in the region. Meanwhile, responding to the demands of people in the region, the Minister announced construction of lanes and drains near Peer Baba as well as a community hall, among other things. (PTI)
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