RBI likely to leave repo rate unchanged
An eager wait for a cut in home loan rates is going to get longer as the Reserve Bank of India (RBI) is likely to leave repo rate (the rate at which banks borrow money from RBI) unchanged in its mid-quarter review of monetary policy on Thursday.india Updated: Mar 14, 2012 23:56 IST
An eager wait for a cut in home loan rates is going to get longer as the Reserve Bank of India (RBI) is likely to leave repo rate (the rate at which banks borrow money from RBI) unchanged in its mid-quarter review of monetary policy on Thursday.
The case for rate cut was weakened by the inflation numbers released on Wednesday as the wholesale price index, main gauge of inflation, firmed up 6.95% in February from a year earlier.
Experts believe inflation concerns are likely to aggravate as central government may hike diesel, LPG prices in the coming days.
"Headline inflation has crept back to 7% even without any fuel price adjustment, a subsequent fuel price hike will easily push the inflation trajectory to the 7.5% range and there could be additional upside pressure in the near term," said Taimur Baig, chief economist, Deutsche Bank.
"While we do not expect any rate cut in tomorrow's monetary policy review, we are now doubtful as to whether the central bank would be able to cut interest rates even in the April policy meeting," he added.
Repo rate currently stands at 8.5%. Crude oil prices, which witnessed a rise of $19 since January 2012, pose major challenge to economy as India imports three-fourths of its oil needs.
Inflation was near double digit for most of 2010 and 2011 and the RBI had hiked key policy rates 13 times, totalling 3.5 percentage points between March 2010 and October 2011 to tame inflation.
"Banks will reduce lending rates only after their cost of funds come down, which will happen when the RBI cuts repo rate," said N Seshadri, executive director, Bank of India. "We expect rate cut by the central bank in April and not on Thursday."
Slow growth of economy is also a concern for RBI. India's economic growth slowed to 6.1%, weakest number in three years, in the three months to December.