India cenbank chief says may withdraw more funds via bond sales

The Reserve Bank of India (RBI) also said government economic reforms and the timing of any increase in US interest rates would be key factors that will determine whether the central bank cuts rates for a fourth time this year.

After opting for status quo in policy rates, Reserve Bank Governor Raghuram Rajan on Tuesday said any more cut will depend on further transmission of previous rate cuts by banks, softening in inflation and progress of monsoon. 25 per cent, citing the delay in transmission of earlier rate cuts by banks and the continuing inflationary pressures in the economy.

“…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.

RBI said it will continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions.

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The momentum of price increases remained high for education, said Dr. Rajan.

“The decision of Central Bank to keep the policy rate unchanged is disappointing for the industry”.

Dan Plant, consumer expert at Moneysupermarket.com, said: “The recent rate rise speculation is starting to make providers cautious, and this is being reflected in their offers”. According to him, differences over the constitution of the committee could be addressed by having three members each appointed by the RBI and the government with the governor being given a casting vote in case of a tie. The central bank, for example, responded to the government’s fuel-price hikes in June 2013 and November 2014 with 50-basis point and 25-basis point hikes in the BI rate, respectively. A renewed fall in oil prices and expectations in markets that the BoE will raise rates sooner than it had envisaged in May could also slow the rise in British inflation. Rajan said the “outlook for growth is improving gradually”, while noting that new investment in India remains subdued and a weaker global expansion may hurt exports. The government, on the other hand, backed by a growing out-cry by the cash-dry industry is interested in increasing the GDP of the country, via a greater access to funds for the starved India Inc. “The RBI believes that institutionalizing the process of monetary policy formulation is vital because the government has given the RBI a clear inflation mandate”, Rajan said.

RBI has cut the rates thrice so far in 2015 by 25 basis points each.

The arguments are all fine, but my take is that RBI will opt for the status quo and wait at least till the next policy review to take a call on its policy rate.

While retail inflation in June rose to an eight-month excessive of 5.4 %, the general wholesale worth index (WPI) based mostly inflation was (-)2.4 % in the identical month. “This implies that inflation projections for January-March 2016 are lower by about 0.2 per cent, with risks broadly balanced around the target of 6 per cent for January 2016”, RBI said. In our view, the CPI would remain modest at 5.5% in the last quarter of FY16. “Once the RBI gets more clarity on the Fed, they will be happy to cut interest rates further”.

“Many lenders allow mortgage holders to reserve rates available now for up to six months for a small fee, so even those who still have some time left on their current deal can benefit”.