New Delhi: The Reserve Bank of India (RBI), which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, is scheduled to undertake its sixth bi-monthly monetary policy review, 2014-15 on Tuesday.
According to bankers and economists, there is room for further rate cut by RBI as retail and wholesale inflation rates have remained benign. As a result of this the RBI is expected to cut its policy rate further by 0.25 percent to boost growth, as inflation remains under control and fiscal situation appears better following a record CIL disinvestment.
The concerns on fiscal deficit front have also eased, especially after the government last week garnered a record amount of Rs 22,577 crore through disinvestment of 10 percent stake in Coal India Ltd.
While lowering the policy repo rate to 7.75 per cent from 8 per cent, RBI had also said on January 15 that further rate cuts would depend upon inflationary expectations and improvement in the fiscal situation.
While the retail inflation slipped to 5 per cent in December, the Wholesale Price Index ( WPI) inflation remained near zero level (0.1 per cent).
The government's fiscal situation is expected to improve further with more disinvestments. So far, the government has realised over Rs 24,000 crore with just two disinvestment share sales, including SAIL's Rs 1,719 crore late last year. It targets to raise a total of Rs 43,425 crore from disinvestment in the current fiscal, ending next month.
Citing favourable macroeconomic conditions, the government and the industry have also been asking for further rate cuts to lower the cost of capital, while RBI Governor Raghuram Rajan had faced a lot of criticism till last month for maintaining a highly hawkish monetary stance.
Even after last month's rate cut, many had said that RBI's move was "too little and too late", while many bankers and experts have predicted overall lowering of rates by up to one percentage points in the coming months.
Oriental Bank of Commerce's chief Animesh Chauhan had earlier said that most macroeconomic indicators favour a rate cut and raise hope that the RBI Governor would consider a rate cut on February 3 by 25 basis points.
Last month, Rajan had said that the further easing of rates would depend on "data that confirm continuing disinflationary pressures".
"Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure," Rajan had said.
State-run IFCI's Managing Director Malay Mukherjee said: "There is a widespread expectation of rate cut but RBI has all the data it will take decision in their wisdom."
Chief Economic Advisor Arvind Subramanian said last month in Davos that RBI may further cut rates as it has managed to rein in inflation.
Some analysts, however, do not expect RBI to announce an interest rate cut.
“Since there has been no new development in the economy between the earlier rate cut announced and the policy date, there is no expectation of a rate cut this time. However, if there is a further 0.25 percentage point reduction, it has to be interpreted as the RBI deciding to be aggressive by cutting rates by 0.50 percentage points in this quarter,” credit rating CARE Ratings had said.
