RBI unlikely to speed up rate cuts

The GDP growth projection of 5% for this fiscal put out by the Central Statistical Organisation (CSO) recently was disappointing but it may not be enough for more rate cuts.

The Reserve Bank of India (RBI) Governor D Subbarao said that the central bank will take into account the growth projection data while preparing the next policy on March 19.

“We got to know about the CSO projected. We will take that into account as and when we make our next policy,” said Subbarao after the RBI central board meeting held in Guwahati.

He said the central bank will also look forward to the Budget to have a better understanding of how fiscal consolidation could be done on the way forward. RBI expects GDP to grow at 5.5% in the current financial year.

However, bankers are not discounting earlier than expected rate cuts yet. Senior official with a large public sector bank said “This is an isolated comment by the governor. Future rate cuts will depend on inflation. It is too early to a draw a conclusion.”

Inflation is not the only barrier to lower policy rates, high current account deficit is also of concern to RBI.

“We will take into account what the current account deficit is. It will not be just driven by the inflation number or inflation trajectory,” the governor had said after announcing the third-quarter monetary policy. Current account deficit was at 5.4% of GDP in the second quarter.

The RBI expects current account deficit to be wider in third quarter on the back of slowdown in net exports of services and larger outflows of investment income payments.

Bankers were of the view that this may not be a continuous or sustained rate cut cycle.

“Rates may not come down unless inflation levels come down,” said the chairman of another public sector bank. The RBI had cut 25bps on policy rate and cash reserve ratio on January 29 after a pause of more than nine months.

Rating agency Crisil said in a note that revival of private consumption in 2013-14 will be aided by a higher agricultural growth (assuming normal monsoon), pre-election government spending and lower interest rates.

http://www.dnaindia.com/money/report_rbi-unlikely-to-speed-up-rate-cuts_1797614