RBI keeps rates on hold ahead of budget
Mumbai : The Reserve Bank of India (RBI) has kept its policy rate on hold at 6.75 percent, as it announced so today, this Tuesday, and the announcement has come as no surprise as it has matched with the anticipation and expectations of such a move, in toto. The status quo raises hopes from the upcoming union government’s budget, as RBI’s step indicates that the central bank is opting to rather wait until for government’s annual budget statement at the end February to decide on whether to cut interest rates further.
A cut in policy repo rate by 125 basis points, which happened recently in 2015, posed as a forewarning from the stables of Chief, as Reserve Bank of India Governor Raghuram Rajan warned on Friday against straying from the path of fiscal consolidation or relaxing the fight against inflation. He firmly stated via his statement on Tuesday, that the central bank would stay ‘accommodative’ with a keen eagle’s eye on the government’s budget this month-end, on 29. In his exact words — The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation. Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth.
Analysts expect India’s budget to raise fiscal deficit targets by a notch higher. This would enable in releasing money for investment in infrastructure projects, while keeping subsidies and other spending under control. With promises made heavily by the ruling central government, Prime Minister Narendra Modi’s government is hard-pressed to walk the talk and deliver stronger growth without any delays.