Inflation dip gives RBI elbow room for rate cut

Our Bureau | | Updated on: Jan 20, 2018

NEW DELHI, 19/03/2013 : Main gate of the Reserve Bank of India, even as top bankers want RBI to cut repo rate by half a percentage point, in New Delhi on 19/03/2013. Photo: V_Sudershan

Even as the RBI Governor Raghuram Rajan gets ready to unveil the first monetary policy statement for the 2016-17 fiscal on Tuesday, HSBC Global Research, in a report, has said, “…steps have been taken to expedite transmission (deregulating the small savings rate, which would make it easier for banks to lower deposit rates, and the move towards marginal cost of funds based lending rates, which could make banks lower lending rates more quickly). We think the RBI would rather wait for these developments to unfold than rush in with an aggressive cut.”

HDFC Bank, in its report, observed that there is room for further monetary easing, and this scenario has been factored-in by the bond markets after the Budget announcement.

“However, a cut beyond 25 basis points could not only lower the real rate of return below the RBI’s comfort range, but given the variety of risks and cautions that the central bank needs to consider, will not, in our opinion, be the prudent thing to do,” it said.

SBI Chairman Arundhati Bhattacharya said she expects the RBI to address the issues of systemic liquidity in the upcoming monetary policy. She pointed out that currently, the issue of high volatility in currency holdings of public (both in the form of cash and jewellery) as well as government’s cash balances with RBI is leading to volatility in system liquidity.

SBI’s suggestion To address this, the SBI chief, in a statement, suggested that the government’s cash balances may be placed with public sector banks, instead of with RBI, so that the cash remains within the banking system and does not create unnecessary volatility in money markets.

Bhattacharya felt that the central bank may also alleviate the market participants’ concern about potential dollar shortages in September/October 2016 related to maturity of special FCNR (B) swaps. Separately, SBI, in its research report ‘Ecowatch’, said it expects that for a major part of the current fiscal, inflation could well be below five per cent and with a little bit luck, it may even go lower than four per cent.

Published on April 03, 2016
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