 "More cuts in repo not expected this financial year")
Despite the Reserve Bank of India’s (RBI) dovish tone on Tuesday in the first-quarter review of the monetary policy, economists are not expecting further rate cuts in the current financial year (2013-14).
Growth, it is expected, will remain weak, inflation high and there will be concerns on the external front.
ALSO READ: RBI Policy: Banks cautious, not to raise rates in the near term
In the first-quarter review, RBI kept key policy rates and banks’ Cash Reserve Ratio unchanged. D Subbarao, the governor, also revised the central bank’s growth projection for the current year downwards to 5.5 per cent from 5.7 per cent earlier. He said RBI would endeavour to bring inflation to five per cent by March 2014, using all instruments at its command.
However, say economists, there are upside risks. “Despite scaling down their growth forecast to 5.5 per cent for 2013-14, the status quo on policy rates was guided by upward risks to inflation and high volatility of the rupee. CRISIL Research believes there is now a significantly diminished probability of a repo rate (at which RBI lends to banks) cut during the rest of 2013-14,” said Ajay Srinivasan, Vidya Mahambare and Dipti Deshpande of CRISIL in a note to clients.
So, CRISIL believes, there is less likelihood of a decline in lending rates during the year. This will be true even if the monetary tightening measures undertaken recently are reversed. Monetary policy is, hence, unlikely to bolster growth this year, the note added.
Since the current financial year began on April 1, RBI had cut the repo rate once, in May by 25 basis points; it is 7.25 per cent at present. Now, economists hope for further rate cuts only in the next financial year.
Growth, it is expected, will remain weak, inflation high and there will be concerns on the external front.
ALSO READ: RBI Policy: Banks cautious, not to raise rates in the near term
In the first-quarter review, RBI kept key policy rates and banks’ Cash Reserve Ratio unchanged. D Subbarao, the governor, also revised the central bank’s growth projection for the current year downwards to 5.5 per cent from 5.7 per cent earlier. He said RBI would endeavour to bring inflation to five per cent by March 2014, using all instruments at its command.
However, say economists, there are upside risks. “Despite scaling down their growth forecast to 5.5 per cent for 2013-14, the status quo on policy rates was guided by upward risks to inflation and high volatility of the rupee. CRISIL Research believes there is now a significantly diminished probability of a repo rate (at which RBI lends to banks) cut during the rest of 2013-14,” said Ajay Srinivasan, Vidya Mahambare and Dipti Deshpande of CRISIL in a note to clients.
So, CRISIL believes, there is less likelihood of a decline in lending rates during the year. This will be true even if the monetary tightening measures undertaken recently are reversed. Monetary policy is, hence, unlikely to bolster growth this year, the note added.
Since the current financial year began on April 1, RBI had cut the repo rate once, in May by 25 basis points; it is 7.25 per cent at present. Now, economists hope for further rate cuts only in the next financial year.