The Reserve Bank of India (RBI), which has raised key interest rates 13 times in the last 20 months in an attempt to rein in rising prices, may finally press the pause button in its monetary policy review on December 16.
RBI governor D Subbarao had said that the bank would resort to rate cuts only once inflation shows signs of easing. Headline inflation last month was at 9.7% just below the double digit figure.
At present, repo rate — the rate at which banks borrow from the central bank — is at 8.50%, which has dampened investment climate in the country as cost of borrowing has become significantly dearer.
Credit growth to industry during the first two quarters of the current fiscal has dropped to 7.5% from 8.1% in the corresponding period of the previous fiscal.
“The RBI may choose to maintain status quo for the time being, it would start reducing rates only once inflation starts to ease, which is likely to happen in the next couple of months,” DK Joshi, chief economist CRISIL told HT.
Bankers said that they expected RBI to hold interest rates at this point. “However, interest rates have peaked and we will see reduction by early next year, though in the next policy review, RBI is unlikely to tinker with the rates,” a chairman and managing director of a public sector bank who did not wish to be identified said.
The Federation of Indian Chambers of Commerce and Industry said that the government and central bank must intervene especially as prospects of global economic meltdown loom large in view of the Eurozone crisis.
According to the Confederation of Indian Industry (CII) the cost of capital in the country, owing to the consecutive rate hikes, is one of the highest in the world.