The agency does not expect any change in the policy rates in the near term. We believe besides looking for a predictable and sustained downward trajectory of inflation, the RBI will watch out for the fiscal stance of the new government before changing the rates. With the new government in place, although the expectation of a further fiscal consolidation and strong action to contain food inflation is high, risks from sub-normal monsoon remain.
The RBI has been trying to take the economy on a disinflationary course by containing the Consumer Price Index (CPI) based inflation, its new nominal anchor, to 8.0% by January 2015 and further to 6% by January 2016. The CPI inflation rose to 8.6% in April 2014 and 8.3% in March 2014 after declining to 8.1% in February 2014.
The reduction of statutory liquidity ratio (SLR) to 22.5% from 23%, though a welcome move, will not have a significant impact on the ground as banks' SLR is much above the regulatory limit. The RBI expects the FY15 GDP growth to be about 5.5%, close to Ind-Ra's FY15 growth forecast of 5.6%.
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