RBI to favour price control, EMIs may not come down

Cooling prices is the priority. Kick-starting growth, probably, will have to wait.

Reserve Bank of India (RBI) governor Raghuram Rajan is widely expected to raise the repo rate —its key lending rate — by 0.25% points in its quarterly credit policy review next Tuesday.

So, expect your EMIs to stay elevated, if not rise further.

“We expect a 0.25% point repo rate hike on October 29,” said Vidya Mahambare, principal economist, Crisil Research.

India’s inflation rates have galloped towards worrisome levels — wholesale inflation was at a 7-month high of 6.46% in September and retail inflation rose to 9.84% during the month.

Industry leaders have been demanding an interest rate cut arguing that high borrowing costs have crimped capacity expansion that has hurt hiring plans.

India’s industrial output crawled at 0.6% in August, belying hopes of an early turnaround.

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Experts, however, said the central bank, which held pre-policy consultations with industry associations and ratings agencies on Monday, may further slash the marginal standing facility (MSF) or the rate at which banks borrow emergency funds from RBI. It currently stands at 9%.

It raised the MSF from 8.25% to 10.25% in July to arrest the rupee’s slide, which has been partially unwound in two tranches.

“We expect MSF to be slashed by 0.25% points in next policy,” said Madan Sabnavis, chief economist, Care Ratings.

 

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