The Reserve Bank of India (RBI) is going to announce fifth bi-monthly monetary policy review on Tuesday, Dec. 02, 2014.
Commenting on the expectations Murthy Nagarajan, head-fixed income, Quantum AMC said, ''RBI in the last monetary policy has not cut the repo rate. RBI it has stated its ability to achieve 6% CPI inflation target in January 2016 is at risk. RBI baseline forecast is of 7% inflation for January 2016.''
''However, recent development like fall in vegetable prices which is down year on year by (-)1.5 %, fuel price inflation coming at (-)3.3% on a year on year basis, Government setting minimum export prices of 300 dollars per ton have led to CPI inflation coming at 5.52% in the month of October 2014. Global developments has also been favourable with Global overcapacity in case of iron ore, oil prices remaining low with Brent trading in the range of 76 to 80 dollars per barrel, China cutting its deposit rates by 25 basis points,'' he said.
''Some section of the bond markets are expecting RBI to cut Repo rates in Dec. 02, 2014 policy itself. The Finance ministry official also want RBI to cut rates to kick start the economy. However, there is a need for caution, the fall in inflation is aided to a large extent due to the base effect, inflation is expected to fall to 4.5% for the month of November and subsequently move to 7% in the month of December as the base effect wears off. Consumer food price inflation has been sticky with inflation averaging around 10 % for the last 5 years. Inflation expectations survey of household done by RBI for the quarter ending September 2014 is 14.6% for the next three months and 16 % for next one year. The Rupee has not depreciated to the extent of rise in dollar index. The dollar index is trading in the range of 87 to 88 levels, which is the highest for the last 3 years. This makes Indian exports less competitive and the rupee prone to quick depreciation in case of any risk off trade as India runs a current account deficit,'' said Nagarajan.
''RBI is expected to be cautious, and wait for more structural reforms from the government to tackle food inflation. RBI would expect the government to stick to reducing the fiscal deficit to 3.6% in the next financial year. We do not expect a reduction in repo rates and we expect the first cut in repo rates to come only in the month of April 2015,'' he opined.
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