RBI may opt for status quo till policy

The Reserve Bank of India may prefer to wait for the annual policy review on April 29 to take a monetary stance in response to the rising inflation fears.

The inflation for the week ended March 8 stood at a high of 6.68 per cent, way above RBI's yearly target of 5 per cent. The central bank, however, maintained that the yearly average will hover around 5 per cent.

WAIT AND WATCH

RBI expects the growth rates to moderate around 8.1/8.2 per cent in FY2008-09 as against 8.5 per cent this year

The inflation for the week ended March 8 stood at a high of 6.68 per cent, way above RBI's yearly target of 5 per cent

In the past, the economy grew at a robust 8.5 per cent despite the high inflation

The market is, however, expecting RBI to either raise the on-lending rates by increasing the repo rates or give a direct interest rate signal by hiking the reverse repo rate

In the past, the economy grew at a robust 8.5 per cent despite the high inflation.

The growth has now moderated due to the global slowdown, but inflation continues to remain high.

RBI expects the growth rates to moderate around 8.1/8.2 per cent in FY2008-09 as against 8.5 per cent this year.

Given the dilemma of balancing growth and inflation, the banking regulator may leave the rates unchanged and wait for a correct assessment of capital inflows from overseas. A slowdown in credit pickup and growth do not call for hikes in interest rate at this point of time, said sources.

Analysts do not rule out a hike in the cash reserve ratio, but only after the liquidity and capital inflows are assessed. Market observers firmly believe the dollar liquidity injected into the global markets will eventually flow into India due to high interest rate differential, but the million dollar question is when.

The market is, however, expecting RBI to either raise the on-lending rates by increasing the repo rates or give a direct interest rate signal by hiking the reverse repo rate.

Repo and reverse repo are liquidity management tools, whereby RBI injects funds into the system under repo and absorbs funds via reverse repo.

Both the operations are collateralised with subsequent sale and purchase of government securities respectively.