RBI monetary policy review today: Five things to watch out for
Reserve Bank of India (RBI) governor Raghuram Rajan is expected to lower key interest rates by at least 0.25 percentage points in the central bank’s first bi-monthly monetary policy review for 2016-17 on Tuesday.business Updated: Apr 05, 2016 10:10 IST
Reserve Bank of India (RBI) governor Raghuram Rajan is expected to lower key interest rates by at least 0.25 percentage points in the central bank’s first bi-monthly monetary policy review for 2016-17 on Tuesday.
In the previous monetary policy review on February 2, the RBI kept the repo rate — the rate at which banks borrow from the RBI - unchanged at 6.75%.
In 2015, the RBI had cut the repo rate by 1.25 percentage points, but banks reduced rates only by 0.70 percentage points.
Here are the five things to watch out for:
1. Interest rate cut: There is a general consensus that the RBI could lower the repo rate to 6.50% from 6.75%.
This is expected to soothe equity markets as it would reaffirm the direction of the government and the central bank policies.
Any additional cut may further boost the stock markets and the Indian rupee considerably.
2. With a declining inflation trend and monsoon expectations, the RBI could further issue guidance on the inflationary path. The RBI’s targeted retail inflation is 5% by March 2017.
3. Rajan is likely to reiterate his expectation on the interest rate transmission by banks, especially after the marginal cost-based lending rate (MCLR) calculation adopted by banks from April 1. MCLR is likely to see faster lowering of loan rates by banks.
4. Bad loans clean-up: In its attempt to clean up banks’ balance sheets by March 2017, RBI has asked banks to make additional provisions for corporate loans to sustain potential loan defaults.
5. Willful defaulters: In the wake of the on-going proceedings against loan defaulting company Kingfisher Airlines and its promoter Vijay Mallya, RBI has submitted a confidential list of defaulters to the Supreme Court. Governor Raghuram Rajan may talk and clarify details on the same.
Markets will also be keenly awaiting Rajan’s comments at the policy conference on his views about the macro economic situation.