RBI sends clear message of reversal of the rate cycle, sooner than later: SBI

The RBI assertion of a possible change in monetary policy stance next year is a clear vindication and acknowledgement of a benign inflation regime.

Dec 02, 2014 04:12 IST India Infoline News Service

Arundhati Bhattacharya, Chariman, SBI
Contrary to the pressure from the government, technical advisory and the various other groups, RBI Governor Raghuram Rajan decided to not reduce the key interest rates in the central bank's monetary policy review. Retail inflation, as measured by the consumer price index (CPI), has decelerated sharply since the fourth bi-monthly statement of September. However, Dr. Rajan said that it would be premature to change the monetary policy at the current stage, yet hinted that if things progress as they are right now, early next year could see some rate cuts. 

Speaking about the annoucement, Arundhati Bhattacharya, Chairman, SBI said, "The RBI assertion of a possible change in monetary policy stance next year is a clear vindication and acknowledgement of a benign inflation regime. In fact, by advancing the inflation target of 6% to March 2015, RBI has now set out a clear message of the reversal of the rate cycle, sooner than later. With oil prices at historic lows, a stable exchange rate and strong capital inflows, the feel good factor is here to stay." 

Driven by softening of fuel and food prices, the wholesale price inflation dropped for the fifth consecutive month to 1.77 per cent in October, its slowest since October 2009. Retail inflation at 5.52 per cent has been the slowest since January 2012. Prime concerns such as food inflation, slowed to 2.7 per cent in October, from 9.6 per cent in May - its lowest level since February 2012. RBI is targeting retail inflation at 8 per cent in January 2015 to 6 per cent in January 2016.

With moderation of inflation there was an expectation of the industry that the Reserve Bank of India (RBI) will cut interest rate in its bi-monthly monetary policy. A rate cut at this stage would have further galvanized the market sentiment and helped in growth. Rate cut will particularly help companies with huge debt on their books. This would have helped companies in the real estate space too which are currently reeling under high levels of debt. However, RBI kept repo rate as well as reverse repo rate unchanged.

Related Story

Open Free Demat Account (Rs699)