The RBI is slated to hold the next monetary policy review on October 4.
The Reserve Bank of India is expected to announce its next monetary policy on October 4, the first under the new Governor Urjit Patel and also the first one by the newly formed Monetary Policy Committee. The rising tensions between India and Pakistan are expected to become a topic of deliberation in the Monetary Policy Committee discussion, according to a report.
The Indian Army announced on Thursday that it had carried out surgical strikes beyond the Line Of Control, destroying seven terrorist launch pads and camps, killing 38 terrorists, according to sources, while injuring one Indian soldier.
While experts expect little or no action on the interest rates from the monetary policy committee, a Care Ratings report said that if the tension between the two neighbouring countries continues, then the RBI may give cutting rates a more serious thought.
Care Ratings said that it didn't expect the RBI to cut rates currently under normal circumstances. However, in the wake of the surgical strikes carried out by the Indian Army on Pakistan, beyond the Line Of Control, and "on the seriousness of the battle and the reaction of the market, the RBI could consider more seriously a rate cut," it said.
"The chances of such action would increase until Tuesday depending on the course of the tension at the LOC." This is the view for the short term, from the ratings' agency.
The RBI is slated to announce its first monetary policy review under the newly formed Monetary Policy Committee, on October 4, which is now conferred with the powers to make a decision on the key policy rates. The Monetary Policy Committee's aim will be to set interest rates to meet the government approved 4% inflation target, with a margin of plus or minus 2%. Now, the RBI governor will only have the power to override the decision made by the Committee, in the event of a tie.
An India Ratings report said that "the agency believes scope for RBI action on rate front appears skewed towards December policy review than October 2016."
While the market is expecting a rate cut on the back of easing inflation last month, a CNBC-TV18 poll found that nearly 65% respondents of the poll conducted amongst eminent bankers, bond dealers, and economists, don't expect the RBI to change the key repo rates.
The new RBI Governor Urjit Patel met with senior economists recently, in an expected move, ahead of a monetary policy. An Economic Times report said, "The takeaway from the closed-door meeting was simple: even if interest rates are now lowered in the October 4 monetary policy, the central bank is likely to maintain a dovish and accommodative stance on interest rates and liquidity."
However, if tensions persist for a "prolonged tenure", then it is likely to give a boost to the defence companies as the government will edge up spends on defence. In the long-term too, India's GDP is not expected to be affected in the wake of the surgical strikes, and "the path of around 7.8% could be expected."
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