The upcoming bi-monthly policy review is largely expected to continue with the current interest rates and those expecting a rate cut could be disappointed. In the last monetary policy, the RBI had changed the outlook from ‘accomodative’ to ‘neutral,’ and in keeping with that stance, the Apex Bank is expected to hold interest rates at current levels.
The repo rate currently stands at 6.25 per cent. It may be remembered that the RBI in the last policy kept rates at status quo, against wide expectations of a 25 basis points cut.
Now the market expects a rate cut only later in the next financial year. In a pre-policy review note, CARE Ratings stated that “there will be no rate cut in tomorrow’s RBI policy view, but a rate cut is expected in 3rd quarter of FY18, if the monsoon conditions in the economy remain normal. The stance will continue to be neutral and not accommodative.”
The benchmark Consumer Price Inflation that the RBI has been following has inched up the last month, after a continuous seven month fall. Food products such as sugar and milk have seen an uptick prices driving up CPI inflation to 6.55 per cent in February 17 from 5.25 per cent in January 17.
Commodity prices such steel and aluminum have also been firming up on the international markets. However, there has been some respite in lower crude prices, which have remained low. Though this is not expected to bring down inflation substantially in the coming months.
The RBI is also expected to be take cognizance of the upcoming monsoon season. Early indications so far are pointing out to a below normal monsoon. This is expected to impact the commodity prices and food inflation in the country.
Banks are also flushed with liquidity post-demonitisation and have been transmitting the lower rates through intermittent rate cuts in their prime lending rate. Hence, systemic liquidity is expected to keep market based interest rates low going for some time, which does not require the intervention of the RBI, according to market experts.
Given that the RBI has just changed its stance to ‘neutral’ in the last policy, the market is expecting a review of the current economic situation in the upcoming Monetary Policy Committee meet slated for the 5th and 6th March. The RBI will announce the decision of the MPC on 6th March, 2017.
However, the general commentary about the GDP growth rate, among others will be keenly watched to assess the impact of demonetisation on the economy. Nomura expects GDP growth rate to come in at 6.7 percent for the March 2017 quarter.
BW Reporters
Having addressed business, stock markets and personal finance for the last 18 years, Clifford Alvares has ridden the roller-coaster markets - up close and personal -successfully, traversing the downs and relishing the rises. The greater part of his journalistic ventures has gone into shaping articles about how to shape portfolios