To hike or not to hike? RBI watchers on guard for shift
policy decision on Thursday even though most expect he’ll keep interest rates unchanged again.
Global markets have been roiled in recent weeks by central bank action, with the Bank of England cutting interest rates last week, the Bank of Japan hiking, and the Federal Reserve preparing to ease amid recession fears. That may give the Reserve Bank of India reason to stay cautious after keeping rates steady for 18 months already.
But there is a chance the RBI may signal a pivot is coming months. Thursday will be the last rate decision of the six-member monetary policy committee before its current four-year term expires in October. Some economists expect the MPC may want to go out with a bang by possibly setting the stage for policy easing.
All except one of the 43 economists surveyed by Bloomberg News predict the repurchase rate may stay unchanged at 6.5%. Bloomberg Economics’ Abhishek Gupta predicts a quarter-point cut.
Here are some of the key issues that will likely influence the RBI’s decision:
Inflation remains above the 4% target
Das has warned against any premature cut. Inflation in June jumped to 5.08%, more than 1 percentage point above the RBI’s target, largely because of high food prices. While inflation may ease in July and August for statistical reasons, it’s expected to pick up again in September. The RBI is forecasting inflation will average 4.5% in the fiscal year through March.
However, the government is in the process of revising its consumer price index and will likely reduce the weighting of
