All eyes on Subbarao on interest rate move | india | Hindustan Times
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All eyes on Subbarao on interest rate move

india Updated: Apr 15, 2012 23:07 IST
HT Correspondent
HT Correspondent
Hindustan Times
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Industry captains, economists, bankers and stock markets would be keenly watching RBI governor D Subbarao's next move on interest rates in the annual monetary policy review on Tuesday, but analysts expect the central bank to reduce lending rates only slightly.

So, don't expect your EMIs (equated monthly installments) to come down in a hurry.

India's factory output grew by a moderate 4.1% in February, a key data that will likely influence RBI's next move.

The central bank, which had raised key policy rates 13 times during March 2010 to October 2011 to contain rising inflation, had kept interest rates unchanged since its December policy review.

Currently the repo rate, which is the rate at which banks borrow from RBI, stands at 8.50%. The cash reserve ratio (CRR), which is the percentage of deposits banks have to park with the apex bank, is at 4.75% following a surprise reduction of 0.75 percentage points a week ahead of the annual budget last month.

"Lower inflation and heightened growth concerns should usher in the start of a rate cut cycle," said Siddhartha Sanyal, chief economist, of Barclays Bank.

There will also be more focus on the accompanying policy statement, which the stock markets and economists will scrutinise closely for the RBI's assessment of the current economic situation.

The central bank is likely to give out GDP growth forecast for 2012-13, which could only confirm that the slowdown in the broader economy is for real.

"We think the RBI will be willing to support growth by cutting the repo rate by 0.25 percentage points on Tuesday," Deutsche Bank said in its research report.

Finance minister Pranab Mukherjee, in the budget announcements last month, had raised excise duty by two percentage points to 12% for most manufactured goods and added more services that will be taxed.

Costlier manufactured goods such as cars and consumer durables are likely to push up inflation that has already begun climbing back.

Wholesale price index-based inflation, India's most watched cost of living index, was at 6.95% in February after falling to a two-year low of 6.55% in the previous month.

"Our immediate priority should be to revive investment in the economy by adopting a flexible monetary policy which would reduce interest rates," said B Muthuraman, president of the Confederation of Indian Industry.

The GDP growth for 2011-12 is estimated to slowdown to 6.9%. Surging protests of policy paralysis and corruption scandals have hit the government.