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Re pain may force RBI to maintain status quo: bankers

business Updated: Jul 28, 2013 14:12 IST
Reserve Bank

A rate cut to prop up sagging growth is unlikely when the Reserve Bank unveils the first quarter monetary policy review on July 30 as focus will be more on supporting the battered rupee, said bankers and economists.

July 30 will be a non-event as RBI governor D Subbarao will leave the repo rate, or the rate at which Reserve Bank lends to banks, unchanged at 7.25%, while the cash reserve ratio will also be retained at 4%, they said.

They, however, added the central bank is likely to give some more clarity on its tightening to stem the fall of rupee.

"I think the status quo will be maintained by the RBI in its policy stance," said VR Iyer, chairperson of Bank of India.

Dena Bank chairman and managing director Ashwani Kumar said he doesn't expect RBI to increase rates.

Chief economist at Care Ratings Madan Sabnavis said considering the tightening the RBI has taken in the past two weeks to contain volatility in the forex market, it is unlikely that the governor will take any measures that will upset the gains achieved on the forex front, even though inflation has come down to comfortable level.

The wholesale-priced based inflation was 4.86% in June, within the Reserve Bank's comfort zone.

Industry has been demanding a cut in lending rates by RBI in view of slowdown in economy. Prevailing high interest rates has particularly hit the manufacturing, with Index of Industrial Production (IIP) contracting by 1.6% in May, the lowest factory output in 11 months.

Pulled down by poor performance of farm, manufacturing and mining sectors, economic growth slowed to 4.8% in the January-March quarter and fell to a decade's low of 5% for the entire FY 2013.

So far this year, the RBI has reduced the repo rate three times to support flagging economy.

However, with rupee kept plummeting new lows the chances of central bank reducing rates further are dim, economists said.

The Reserve Bank of India (RBI) had announced various steps to save the battered rupee which touched a life-time low of Rs 61.21 to the dollar on July 8 on concerns over widening current account deficit and early withdrawal of easy money by the US Federal Reserve.

As a liquidity tightening measure, it had limited access to borrowed funds by reducing the liquidity adjustment facility for each bank from to 0.5% of net demand and time liabilities from 1%.

The central bank also asked banks to maintain a higher average cash reserve ratio of 99% of the requirement daily as against 70% earlier.