Macro Economy

RBI Governor likely to hold rates

NS Vageesh Mumbai | Updated on November 23, 2017 Published on January 27, 2014

Will he or won't he? RBI Governor Raghuram Rajan

May not want to rock the boat now that the US Fed has begun tapering

It’s guessing time again. Will he or won’t he raise the rates today? Consensus estimates point to the RBI Governor Raghuram Rajan holding rates this time. He has twice increased the repo rate in the course of his five-month-old tenure and surprisingly paused once in December.

That move was vindicated by a lower trajectory of inflation numbers that have come in during this month.

Vegetable and food prices are down compared to a couple of months ago when jokes about onion burglaries did the rounds. Importantly, it has even raised hopes of an easing of interest rates, although many experts think it premature and unlikely for this fiscal. The run of slightly lower prices may continue for a few more months till once again the low-base effect kicks in. So, many think he will hike rates by up to 50 basis points later this calendar year.

Some also feel that, if one goes by the forward guidance given by the RBI last month as well as the recommendations of the Urijit Patel committee on a new monetary policy framework, there could be a hike — if only to retain credibility about its commitment to inflation fighting.

Right now, he may hold — so as not to rock the boat, given that the taper by the US Federal Reserve has just begun. Although the market has braced itself for the withdrawal of liquidity in a gradual manner (after an early warning from Bernanke last year), it may still be worth waiting for its impact to be clearer.

Looming elections this year also have to be factored in. The last quarter of the fiscal typically sees a pick up in credit and the Governor may not want to make things more difficult for industry than they already are.

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Published on January 27, 2014
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