Urjit Patel likely to hold rates till December: Goldman Sachs
Goldman Sachs, one of world’s largest investment banking and securities company, expects RBI to keep key interest rates unchanged till December 2016 and continue the focus on inflation.business Updated: Aug 25, 2016 12:27 IST
Goldman Sachs, one of world’s largest investment banking and securities company, expects RBI to keep key interest rates unchanged till December 2016 and continue the focus on inflation.
The global bank’s view comes after the announcement of the appointment of Urjit Patel as the next RBI governor, who will take charge from Raghuram Rajan for a three year term from September 6.
“In our view, Dr Patel is likely to maintain similar views as governor Rajan in the inflation targeting, banking sector reforms, overall liquidity, and exchange rate policy areas,” analysts Nupur Gupta, Vishal Vaibhaw and Andrew Tilton said in the report. “We expect RBI to continue its focus on bringing down inflation, and maintain our view that policy rates will be kept on hold for the remainder of 2016,” they wrote.
The RBI has outlined in its monetary policy statements that it aims to bring headline CPI (consumer price index) inflation down to 5% by March 2017. Consumer prices rose at a faster-than-expected pace to 6.07% for July. The government has also set the target to maintain inflation at 4% (+/-2%) for the next five years.
In its last monetary policy statement, the RBI acknowledged that risks continue to be tilted to the upside, stemming from a recovery in crude prices, narrowing of the output gap and the full implementation of the 7th Pay Commission covering allowances.
Goldman Sachs said that while Dr Patel has not been directly involved in the asset quality review process of bank balance sheets, “we expect that he is likely to continue the process of cleaning up of bank balance sheets and adhere to the March 2017 deadline set by Dr Rajan.” In the near term, key tasks for the next governor include implementation of the Monetary Policy Committee and ensuring smooth redemption of $26 billion of non-residents deposits between September and November. “It is also important to see who replaces Dr Patel to head the monetary policy department as that appointee will be part of the MPC.”