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

‘World’s biggest festival of democracy’ begins

The much-awaited General Elections of 2024, billed as the world’s biggest festival of democracy, began on Friday with Phase 1 of polling in 102 Parliamentary Constituencies (the highest among all seven phases) in 21 States/ UTs and 92 Assembly Constituencies in the State Assembly Elections in Arunach

A sustainability warrior’s heartfelt stories of life’s fleeting moments

Fit In, Stand Out, Walk: Stories from a Pushed Away Hill By Shailini Sheth Amin Notion Press, Rs 399

What EU’s AI Act means for the world

The recent European Union (EU) policy on artificial intelligence (AI) will be a game-changer and likely to become the de-facto standard not only for the conduct of businesses but also for the way consumers think about AI tools. Governments across the globe have been grappling with the rapid rise of AI tool

Indian Railways celebrates 171 years of its pioneering journey

The Indian Railways is celebrating 171 glorious years of its existence. Going back in time, the first train in India (and Asia) ran between Mumbai and Thane on April 16, 1853. It was flagged off from Boribunder (where CSMT stands today). As the years passed, the Great Indian Peninsula Railway which ran the

Vasudhaiva Kutumbakam: How to connect businesses with people

7 Chakras of Management: Wisdom from Indic Scriptures By Ashutosh Garg Rupa Publications, 282 pages, Rs 595

ECI walks extra mile to reach out to elderly, PwD voters

In a path-breaking initiative, the Election Commission of India (ECI), for the first time in a Lok Sabha Election, has provided the facility of home voting for the elderly and Persons with Disabilities in the 2024 Lok Sabha elections. Voters above 85 years of age and Persons with Disabilities (PwDs) with 4

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now


Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter