So far in 2015, RBI has cut benchmark rate twice out of policy review. It did it first in January when repo (short term lending) rate was slashed by 0.25%, followed by a similar percentage point in March.
RBI Governor Raghuram Rajan today hinted that the central bank may cut interest rates before the next policy announcement on September 29, depending upon macroeconomic indicators.
"We are waiting information. There was more need to move fast in the early stages of the turnaround. We will take all information into account and decide whether at times it warrants moving in between policy cycle or it does not," he said after the monetary policy review here today.
Both CPI and WPI inflation numbers for July would be released this month while Index of Industrial Production (IIP) figure for June as well as first quarter GDP numbers are also expected in the same month.
Besides, RBI will get another set of WPI, CPI inflation data for August and IIP numbers for July in September to firm up its view on interest rates before the fourth bi-monthly monetary policy review on September 29.
So far in 2015, RBI has cut benchmark rate twice out of policy review.
It did it first in January when repo (short term lending) rate was slashed by 0.25%, followed by a similar percentage point in March.
"It's more reasonable to go back to pattern during some time. But nobody ever rules out any action that central bank can take. It's one of the options that we always have," he said.
Meanwhile, RBI today kept the repo rate, the rate at which it lends to the system, unchanged at 7.25% and the cash reserve ratio, which is the proportion of deposits banks have to park with the central bank, at 4%.
"... it is prudent to keep the policy rate unchanged at the current juncture while maintaining the accommodative stance of monetary policy," RBI's third bi-monthly monetary policy statement said.
"Significant uncertainty will be resolved in the coming months, including the likely persistence of recent inflationary pressures, full monsoon out-turn, as well as possible Federal Reserve actions.
"As the RBI awaits greater transmission of its front-loaded past actions, it will monitor developments for emerging room for more accommodation," it said.
The outlook for growth is improving gradually, it said, adding that favourable real income effects could accrue from weaker commodity prices, in particular crude oil, and a possible step-up in agricultural activity if monsoon conditions continue to improve.
Chandrajit Banerjee, Director General, Confederation of Indian Industry commenting on RBI's move to keep rates unchanged today, said:
"Frontloading the interest rate cuts should have been allowed to continue as this would have sent a strong signal that the RBI aggressively addressing the growth risks in the economy accruing from weak demand conditions which are holding back investments.
No doubt, CII appreciates the RBI’s concerns about the anticipated pipeline risks arising from inflationary expectations and unfavourable external developments as cited in the policy statement. However, crude oil prices have been on a downtrend, thereby allaying fears of imported inflation, the timing of the proposed Federal Reserve actions, which is anticipated to unsettle our financial market, is still unclear, and the government’s food policy management has beneficially impacted inflationary expectations which is reflected in our subdued headline inflation print.
At the same time, credit demand is weak, and corporates and banks are grappling with a large number of stressed assets, particularly in the infrastructure sector. A cut in interest rate in such a situation would have done much to restore the investment cycle.
Going forward, CII expects that the spotlight would be shifted towards growth and RBI would resume monetary easing in its next monetary policy when there would hopefully be much more clarity about the inflation trajectory, the normalcy of monsoons and the possible Federal Reserve actions.
Murthy Nagarajan, Head, Fixed Income ,Quantum AMC said: “The RBI as expected has maintained the policy rates; given that they had front-loaded the initial rate cuts between January and June. Although, our base case suggests rate cuts later in the year; but there is a possibility of a 25 bps cut in the September policy post clarity on FED action and the full impact of monsoon on food prices. We found the statement more accommodative as they find inflation risks balanced, which suggests that one should expect rate cuts ahead and it is only a matter of timing.”
(With agencies)
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 "Reserve Bank of India (RBI)")
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