“This requires not just a good monsoon but also good management of stocks and easy movement of supplies across the economy”.
Advertisement
Mumbai: Reserve Bank Governor Raghuram Rajan will go for a status quo in rates at the upcoming policy review on Tuesday, and focus on inflation and transmission of past rate cuts, says a report. Since then, he has been persuading banks to fully transmit the benefit of the policy rate cut to customers.
“RBI is likely to maintain status quo this time”. RBI narrowed the policy rate corridor to 0.50 per cent from the earlier 1 percentage point, which resulted in the reverse repo rate – at which banks can park excess funds with the RBI – being reset at 6 per cent.
“But, banks should reduce the base rates proportionately in tandem with the reduction in policy repo rates which did not happen on the previous occasions when the repo rates were cut”, pointed out M. Velusamy, an apparel exporter and state council member of Confederation of Indian Industry.
The headline inflation rose to 5.4 per cent in April on a spurt in food prices. The survey indicates an improvement in the overall business situation, driven by a pick-up in capacity utilization and has put strong expectation of business conditions as seen in the first half of 2016-17.
Besides inflation, the crude oil price is also looking up and has touched $50 a barrel, from a low of about $30 per barrel, and could increase inflationary pressures.
Given the uncertainties, the Reserve Bank will stay on hold, but the stance of monetary policy remains accommodative.
RBI Governor Raghuram 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 past year.
“The reassurance that the RBI stands ready to mitigate any financial volatility resulting out of FCNR deposit maturities due later this year is very welcome”, said Chanda Kochhar, Managing Director and CEO, ICICI Bank.
However, latest official data showed India was one of the world’s fastest growing economies in the March quarter, with GDP growing at a rate of 7.9 per cent.
Advertisement
Rajan further said the expectations of a normal monsoon and a reasonable spatial and temporal distribution of rainfall, along with various supply management measures and introduction of the electronic national agriculture market (e-NAM) trading portal, “should moderate unanticipated flares of food inflation”.
