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Monday, February 01, 2016

RBI unlikely to cut interest rates on Tuesday

The Reserve Bank of India (RBI) which meets this Tuesday for a sixth bi-monthly policy review is unlikely to tinker with interest rates as a recent acceleration in inflationary pressures in Asia’s third biggest economy leaves little room for the central bank to undertake further monetary easing. The central bank is tipped to leave its repo rate unchanged at 6.75 per cent, while the cash reserve ratio is set to be maintained at 4 per cent. The apex bank had cut borrowing costs by a total of 125 basis points (bps) in 2015. At its last policy meet in December, the RBI had indicated that further cuts in borrowing costs will hinge on the inflation trajectory in the country’s economy. Consumer inflation accelerated to the highest level in fifteen months to 5.6 per cent in December 2015, rising for the fifth straight month, but staying below the RBI’s 6 per cent goal for January 2016. However, a continued global commodity rout may exert downward pressure on inflation over the coming months. The RBI is also awaiting the progress and direction on key macroeconomic parameters including the fiscal deficit in the upcoming Union Budget. Singapore-based DBS Bank expects the RBI to maintain status quo on interest rates on Tuesday with a 25 bps cut in borrowing costs likely in March or April depending upon the government’s fiscal consolidation efforts that will be unveiled in the budget.