Reserve Bank of India is expected to wait until after the government’s budget statement at the end February to decide on whether to cut interest rates further, rather than take the plunge at a policy review on Tuesday.
Here are five things to watch out for in RBI’s 6th bi-monthly monetary policy review on February 2
1. Interest rate pause: Among general consensus, the RBI is likely to hold the Repo rate at 6.75%. This is also expected to direct the Indian equity markets in the upcoming week. With both wholesale and retail inflation on the rise, the RBI will guide further on the expected inflationary path. RBI’s targeted retail inflation is 5% by March 2017.
2. RBI Governor Raghuram Rajan will watch out for cues from the Union Budget due on February 29. He is likely to mention about the impact of 7th Pay commission outgo, fiscal path expectations, GDP growth, to base his further rate actions.
3. 3. The banking regulator’s take on the global currency wars including Chinese currency Yuan’s devaluation impact on Indian rupee, which fell to a 29-month low last week.
4. 4. Rajan without fail will convey his stance on the piling bad loans in the banking industry and way forward on the existing mechanisms and framework to clean up the banks’ balance sheets.
5. Rajan is likely to reiterate his expectation on the transmission of the previous repo rate cuts on lending and deposit rates by banks.
More importantly, all of the above must be watched out for the Rajan-styled witty, sharp and to-the-point quotes that have made the RBI monetary policy reviews livelier than ever in the past three years.