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Policy set to leave rates unchanged

The RBI will be at a crossroads when it reviews its monetary policy for 2008-09 on July 28, as it has to battle rising inflation expectations and a record government borrowing while needing to keep interest rates stable to nurture the early recovery in economic growth.

business Updated: Jul 26, 2009 21:45 IST
HT Correspondent

The Reserve Bank of India (RBI) will be at a crossroads when it reviews its monetary policy for 2008-09 on July 28, as it has to battle rising inflation expectations and a record government borrowing while needing to keep interest rates stable to nurture the early recovery in economic growth.

The RBI is also expected to comfort the market with a commitment to ensure that the goverment's Rs 4,51,000 crore borrowing programme would be conducted in a manner that would not impact interest rates and liquidity availability for the private sector.

The RBI's repo rate is the rate at which the central bank infuses liquidity into the banking system and reverse repo rate is the rate at which it sucks out liquidity.

"We expect RBI to maintain status quo on policy rates, continue with its objective of ensuring adequate liquidity and start tightening the monetary policy only in the April-June 2010 quarter," said Rohini Malkani, economist with Citigroup India.

Although the wholesale price inflation remains in the negative territory (minus 1.16 per cent as on July 11), the consumer price inflation has remained in the 8-9 per cent range largely due to the rise in the food prices.

Said HDFC Bank's Chief Economist, Abheek Barua: "We do not expect repo/reverse repo rate or CRR (cash reserve ratio) to be reduced given the conflicting objectives of managing inflation and accommodating government borrowings...”