Will RBI lower rates or maintain status quo?

India Infoline News Service | October 03, 2017 10:20 IST

All eyes are on the Reserve Bank of India’s monetary policy announcement scheduled for Wednesday, October 4.

All eyes are on the Reserve Bank of India’s monetary policy announcement scheduled for Wednesday, October 4. The central bank should cut the interest rates to lend support to the weakened economy, believe market analyst, while bankers feel RBI should maintain status quo. The growth in the economy fell to a three-year low of 5.7% in the June quarter.
 
The economy has been reeling under pressure due to the potential impact of demonetisation and GST implementation. A rate cut is necessary to boost the economic growth. Subdued inflation in the country is also a serious issue to watch out for. However, some of the banking sector officials believe that the RBI should maintain status quo as inflation has seen a decrease.
 
According to a SBI report, the RBI is likely to maintain status quo on key lending rate in its October 4 policy decision as it is 'stuck in a conundrum' of low growth, mild inflation and global uncertainties. It said that against the background of flexible inflation targeting, the obvious question that arises is choosing between — the move towards the 4% inflation target swiftly or staying in the inflation band, reported a leading news agency.
 
Last week, a top finance ministry official said there is scope for a RBI rate cut at the next policy review as retail inflation continues to be low.
 
In its last policy review in August, the RBI reduced the repo rate by 0.25% to 6% in August, citing reduction in inflation risks. The rate cut was the first in 10 months and brought policy rates to a near seven-year low. However, retail inflation rose to a five-month high of 3.36% in August due to costlier vegetables and fruits. The consumer price index (CPI) based inflation was 2.36% in July.

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