RBI likely to hold rates on December 1

RBI Governor Raghuram Rajan may adopt a wait-and-watch approach in the upcoming monetary policy, maintaining a status quo on the interest rates.

It’s going to be a damp squib of a monetary policy review tomorrow (1 December) at Mint Road.

While the Reserve Bank of India wants the banks to do much more and pass on the substantial easing of rates to the borrowers, the banks have not been showing the similar zeal citing different technical reasons and retained good part of the cut in the REPO rates. It left the cash reserve ratio or CRR (the proportion of deposits banks’ park with Mint Road) and the statutory liquidity ratio or SLR (the proportion of deposits to be invested in government securities) unchanged at four per cent and 21.5 per cent respectively. US Fed, on the other hand, is likely to start rate hikes in mid-December. A report by Citi group said that the impact of the 7{+t}{+h} Pay Commission on the Budget also warrants a cautious stance.

Inflation is still expected to undershoot RBI’s January CPI projection at 5.8 per cent, while the central bank may cut rates by another quarter to half a percentage point by next June-July, spurring the country’s economic growth. “We believe BI will cut its interest rate from 7.50 percent to 7.25 percent sometime in the first quarter of 2016”, said Dutta in Jakarta on Friday.

Ashish Parthasarthy, Head Treasurer at HDFC Bank, said: “No major change has taken place from what was earlier”.

CARE said, “Inflation has been advancing on account of higher food prices given a deficient monsoon for the second consecutive season”.

The RBI had said in the September review that inflation is likely to stay below January 2016 target of 6 per cent in FY16 and will average 5.5 per cent for FY17.

Maple Leaf Foods Inc said it would cut 400 jobs, or about 3 percent of its workforce, almost a month after the meat packer pushed back a timeline for hitting a key profit target.

Worries about the fallout from the downing of a Russian warplane by Turkey, which weighed on stocks on Tuesday, eased as traders looked forward to Thursday’s Thanksgiving holiday. I expect a dovish outlook as it will be accommodative stance for promoting growth and the markets will cheer.

Industry output growth has slowed unexpectedly, indicating that stress in manufacturing continues. “If we use medium-term about-7 per cent CPI inflation as a proxy for inflation expectations, policy rates, at 6.75 per cent are already negative ex ante (which is surely how real policy rates ought to be measured)”, points out Indranil Sen Gupta India-Economist at Bank of America-Merrill Lynch (India).

– The dollar is expected to rise further should the Fed decide to lift interest rates in December, which have been near zero-levels for nearly a decade.