RBI likely to maintain status quo on June 7
New Delhi, June 5: With retail inflation showing signs of hardening, RBI Governor Raghuram Rajan may maintain status quo in the bi-monthly monetary policy review on Tuesday, June 5 and wait for the impact of delayed monsoon rains before making the next move, say experts.
Rajan, criticised for following hawkish monetary policy for too long before starting to lower rates, has reduced the benchmark interest rate by 1.5 per cent since January last year.
Since then, he has been persuading banks to fully transmit the benefit of the policy rate cut to customers.
The customary post-policy press briefing by Rajan, whose current 3-year term as the central bank Governor ends in September, will also be closely watched for any cues relating to whether he is being given an extension.
"RBI is likely to maintain status quo this time. Although there is consistency in inflation numbers, the last numbers do not give much comfort," a senior banker said. "Only positive factor is good monsoon. RBI will wait for it to happen before taking any call on rate cuts," he said.
Retail inflation soared to 5.39 per cent in April on higher food prices, reversing a downward trend seen in recent months. "With inflation remaining sticky at slightly above 5 per cent and growth fairly steady (although uneven), we expect policy rates to stay on hold until end-2016 (including at the upcoming policy meeting on June 7) with the focus shifting to liquidity provision," Nomura said in a report.
After a gap of six months, RBI had cut repo rate, at which it lends to other banks, by 0.25 per cent to 6.5 per cent in April.
It was the first bi-monthly monetary policy review of the current financial year 2016-17. Besides inflation, the crude oil price is also looking up and has touched USD 50 a barrel, from a low of about USD 30 per barrel, and could increase inflationary pressures.
"Personally, I don't expect the Governor to cut the rates on Tuesday given the delay in the monsoons," StanChart India CEO Zarin Daruwala said.