RBI governor Raghuram Rajan will announce on Tuesday the second bi-monthly monetary policy review of the current financial year amid questions over alleged failure to lower interest rates and boost the economy.
Making Reserve Bank of India’s first policy review of the financial year in April, Rajan had cut the central bank’s repo, or short-term, rate -- at which it lends to commercial banks by 25 basis points to 6.5%.
Though not much is expected from the RBI’s monetary policy review meeting, the general expectation is that governor Rajan will be in a wait-and-watch mode.
Below are the things to watch out for from today’s monetary policy:
Interest rate: RBI will likely too keep the key policy repo rate at 6.5%. This may not trigger an immediate reduction in EMIs for loan borrowers, but banks may nevertheless look at lending rate cut in the coming months.
Inflation and monsoon: A largely inflation targeting policy will speak of data on the upcoming monsoon and its impact on inflation and global crude oil prices, which have risen over $50 per barrel. Consumer price index (CPI) inflation has risen from 4.83% in March 2016 to 5.39% in April. Wholesale price inflation (WPI) also rose a tad to 0.34% in April, compared with -0.85% in March.
Data on US rates, Brexit: Rajan, former International Monetary Fund chief economist, is expected to keenly watch global developments in this policy, which will include hints from the US central bank chairperson Janet Yellen’s speech and chances of its rate hikes after the recently announced weak job data in the US. The interest rates development in the US has an impact on the funds flows in India. More importantly, his comment on Brexit’s (Britain’s exit from Euro Zone) and its impact on Indian economy will be tracked.
Bad loans: Finance minister Arun Jaitley met public sector bank chiefs ahead of the policy with regards to more disclosure of non-performing assets (NPAs) and their capital requirement. Rajan’s take on the situation handled by the Government and performance by banks will be worth noting.
Tuesday’s policy statement by Rajan, whose term ends on September 5, might be the last to be made by an RBI governor. The government is reportedly putting in place a monetary policy committee and future announcements are likely to be made by the panel dominated by RBI officials.