Leading foreign lender HSBC today said it sees little chance of a rate cut by the Reserve Bank next week, as nothing on the fiscal or inflation fronts has changed from the mid-quarter review last month.
“With below-normal monsoon and little policy action from Delhi, the Reserve Bank is likely to keep rates unchanged next week. The fiscal stance remains too loose for comfort and elevated inflation expectations are a concern,” HSBC Chief Economist for India & Asean, Leif Eskesen, said in a report.
Though there has been policy progress in Europe, the global economic backdrop remains decidedly challenging, Mr Eskesen said, adding that domestic conditions have remained fairly stable, though, and underlying inflation has stayed firm.
The Reserve Bank Governor, Dr D. Subbarao, will unveil the first quarter monetary policy on next Tuesday and the Government and the credit-starved industry are clamouring for some growth-enabling action from the Mint Road, in view of decelerating growth numbers and tepidly moving inflation.
Higher inflation
While GDP growth hit a nine-year low last fiscal at 6.5 percent, inflation still remains elevated at 7.25 per cent for June.
Despite all the poor GDP numbers, the RBI left the policy rates and CRR unchanged at the last meeting on June 16.
Mr But Eskesen said staying on hold was the right decision as RBI saw a big portion of the slowdown in growth unrelated to interest rates and instead more structural in nature, making rate cuts ineffective as a tool to raise growth.
Since the last monetary policy meeting, global economic conditions have not offered much comfort. US indicators have softened in recent months.
This has increased the likelihood that the Fed may need to step in again, he said, adding that in Europe, the real economy has continued to weaken, including in core countries, and progress on policies to address the debt crisis has failed to assuage market concerns.