Experts say RBI will maintain status quo; what will Raghuram Rajan do?

The Reserve Bank of India is expected to announce its second bi-monthly monetary policy of the current fiscal on Tuesday. Experts say that the central bank will keep key policy rates unchanged in the light of higher inflation, extreme weather, and global uncertainties. In the last monetary policy meet, the RBI Governor had cut the repo rate by 25bps. What will Raghuram Rajan do this time?

Experts talk

HSBC, Chief India Economist, Pranjul Bhandari

India's summer is laden with suspense, she says. Several things would play up in the minds of the regulators like whether the Fed will hike rates, oil prices will continue to rise or if we would get sufficient rains to contain food prices.

Axis Bank, Chief Economist, Saugata Bhattacharya

There are "too many uncertainties for the RBI to consider. Today's non-food payroll data in the US was a case in point, which showed just 38,000 job additions when the expectation was 158,000. It may be an anomaly but the Fed is certainly not going to hike rates in the June meeting. In India, rains, oil and food prices are a big worry. So the RBI would prefer to wait and watch, before bringing down rates."

Barclays India, Chief Economist, Siddhartha Sanyal

We think the RBI has relatively few 'rate cut bullets' left in the near term, given the 1.5% reduction in the repo rate (to 6.5%) since January 2015. In our view, the RBI is likely to continue to monitor the transmission of previous easing measures, developments on the inflation front, and this year's monsoon before cutting the repo rate further. A clearer picture should emerge before the August policy meeting.

India Ratings, Chief Economist and Head Public Finance, Devendra Kumar Pant 

Rather than cutting rates, Rajan will focus on inflation control, liquidity management, and the pending policy transmission in the near-term. Fed’s rate decision later in the month, Brexit and the performance of monsoons will also weigh on RBI's decision on Tuesday. 

Standard Chartered, Head - South Asia Economic Research (India), Anubhuti Sahay & Senior Asia Rates Strategist Standard Chartered Bank, Nagaraj Kulkarni 

Rising global uncertainty on the back of the upcoming European Union referendum on Brexit, US Federal Reserve rate hikes; higher inflation led by a spike in food inflation, and the liquidity condition in the Indian economy, is likely to urge the Reserve Bank of India to keep its key policy rates unchanged in the June 7 policy meet.

However, all eyes will be on monsoon and the central bank may maintain its accommodative stance.