With WPI over 6%, rate cut unlikely

Experts believe that with existing inflationary pressures, the RBI governor is likely to hike the repo rate in the upcoming monetary policy review on October 29

GN Bureau | October 15, 2013



Looks like Reserve Bank of India (RBI) governor Raghuram Rhajan will have to wait longer before he can give in to popular demand of easing up interest rates thanks to persistent inflationary pressures. With the rise in the wholesale price index (WPI) based inflation last month to 6.46 percent, the highest in seven months, experts expect Rajan to maintain a hawkish stance and hike the interest rate.

In the second quarter monetary policy review to be announced on October 29, experts have pegged a repo rate hike by 25 basis points. Repo rate is the rate at which banks borrow from the RBI and this impacts the interest rates charged on loans to consumers.

The increase in the WPI inflation from 6.1 percent in August to 6.46 in September, mainly due to high food prices, has put greater pressure on the RBI to further tighten liquidity in the economy.

In his debut monetary policy review last month, Rajan had raised the repo rate by 25 basis points to 7.5 percent.

While experts are pretty sure of an in interest rate hike, India Inc is hopeful that Rajan will keep the poor investor sentiment in mind and go in for a rate cut despite high inflation.

"The increase in inflation to a seven month high is a cause for concern especially as the economy is in the midst of investment led slowdown and there are no major signs of a turnaround in industrial activity in the country," said Chandrajit Banerjee, director general, CII.

He further said, "The revival of inflation, especially that of food prices, calls for urgent steps to address supply side bottlenecks in agriculture. Besides, the rise in inflation should not come in the way of the forthcoming policy of monetary easing by the RBI as the arrival of kharif crop in October would provide some relief in food prices, going forward. Moreover, it is of utmost importance to shore up flagging investor sentiment which has been adversely affected by high interest rates."
 

Comments

 

Other News

On a personal note: DIVINE

An underground rapper who grew up on Mumbai streets, Divine spins his music around his environment and poverty. His breakout single, ‘Meri Gully Mein’, along with fellow rapper Naezy caught Bollywood’s attention. The Hindi film ‘Gully Boy’ is inspired by their lives and gr

The role model for an IAS officer

Anil Swarup, an IAS officer of Uttar Pradesh cadre who retired in 2018, is a model bureaucrat who retained his optimism right till the end of service and exemplified dedication and commitment. His excitement at the opportunities that a job in the IAS provided is evident on every page of his new book publis

Reform of the civil services: At home and away

The question of reform of the civil services has been debated extensively at all levels at least over the last five to six decades after independence. Indeed, it was soon perceived that the Indian Administrative Service (IAS) may not be well equipped to deal with the problems of an emerging developing coun

The greatest challenge for any government

Shouting vengeance at all and sundry while wriggling out of holes of our own making seems to be our very special national characteristic. Some recent instances are illustrative of this attribute. A number of business tycoons with thousands of crores of unresolved debts have fled abroad with the government

The mysterious case of CBI’s legality

The Central Bureau of Investigation (CBI) came into existence, based on a Resolution of the home ministry, dated April 1, 1963 – a sheer coincidence that it also happens to be April Fool’s day. Over the past few months, we have seen the CBI live up to its founding day with great zeal, being i

The Evolution of Modi

Gujarat was passing through a turbulent phase in the 1980s. The decade began middle class agitations against new reservation policies, and the caste friction turned communal under the watch of chief minister Madhavsinh Solanki, alienating majority of urban population on both counts. The ground was ripe for

Current Issue

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter