Leading industry lobbies and think-tanks believe the country’s central bank would leave the key interest rates unchanged when it reviews monetary policy for the current fiscal Tuesday.
“We expect the Reserve Bank of India (RBI) to keep all rates unchanged on October 27, in line with consensus,” global investment banker Goldman Sachs said in a statement.
Added Tushar Poddar, Vice-President and Chief Economist at Goldman Sachs India: “Although industrial production has rebounded strongly, and inflationary pressures are latent, we think RBI is not yet ready to withdraw its accommodative stance and hike rates.”
According to Moody’s economy.com, the research arm of global rating agency Moody’s, the apex bank is expected to refrain from hiking policy rates as “the recovery is in its early stages”.
It said the RBI would begin raising policy rates in the second quarter of 2010, with an initial 25-basis point rate hike.
The Associated Chambers of Commerce and Industry (Assocham) has urged the RBI to maintain the status-quo for at least six more months to maintain and accelerate the growth momentum.
In the first quarter review of the policy three months ago, the central bank had kept the key rates unchanged, but cautioned that inflation rate could balloon to 5 percent.
In April, RBI Governor D. Subbarao cut the repo and the reverse repo rates by 25 basis points each, even as the bank rate, the statutory liquidity ratio and the cash reserve ratio were left unchanged.
The repo rate, currently at 4.75 percent, is the interest charged by the RBI on borrowings by commercial banks. A reduction in it lowers the cost of borrowings for commercial banks.
The reverse repo rate, currently at 3.25 percent, is the rate at which the central bank borrows money from commercial banks. A lowering of this rate makes it less lucrative for banks to park funds with the central bank.
The cash reserve ratio, now at 5 percent, is the amount banks have to retain in the form of cash, while statutory liquidity ratio, at 24 percent, is the amount these institutions have to invest in specified securities.
