RBI may not hike rates as growth slowsDecember 15th, 2011 - 3:17 pm ICT by IANS
New Delhi, Dec 15 (IANS) Industrial production dipping into the negative and growth slowing down will play a major role in the Reserve Bank of India’s decision on key interest rates and India Inc. hopes the central bank will not play spoil sport this time.
The RBI will conduct the mid-quarter review of the monetary policy on Friday.
The central bank has hiked rates 13 times since early 2010 to tame inflation. That objective is closer to realisation, according to latest official figures. Food inflation has dipped to 4.35 percent for the week ended Dec 3, while headline inflation - though still above 9 percent - has shown some signs of decline.
Industrial production, however, has taken a beating in the past four months. High interest rates have deterred investments and brought down the index of industrial production into negative terrain.
IIP for October was logged at (-) 5.1 percent.
Overall gross domestic product growth too will not be as per earlier forecasts. With 6.9 percent GDP growth in the first quarter and 7.3 percent in the April-September period, growth this year will be below expectations.
Latest government estimates peg it at 7.5 percent (+ or - 0.25 percent).
“With growth slowing more than expected and likelihood that headline inflation could cool to 7 percent by March, the central bank is likely to build in a dovish rhetoric in its monetary stance leaving door open for a possible CRR cut in January and a repo rate cut in first quarter of FY13,” said Abheek Barua, chief economist at HDFC Bank.
The markets, however, looked like bracing for another rate hike with some sections feeling the RBI could once again tighten policy rates to ensure inflation comes down to below 7 percent by March.
The 30-scrip sensitive index of the Bombay Stock Exchange was trading 130 points lower 0.82 percent at 15,750.27 points. It fell to an intra-day low of 15,596.22 points.
Another major worry for the RBI in the short-term would be the sharp depreciation in the rupee. The Indian currency hit another new low Thursday at 54.30 a dollar. It has been consistently falling to new lows for the past four days and has lost over 20 percent to the dollar in just four months.
A falling rupee makes imports costlier, especially those of petroleum products, putting pressure on oil marketing companies to raise prices of de-regulated fuels like petrol. While the government would fend off an increase in diesel, kerosene and cooking gas, it can do so only for a limited time.
All this will add to inflationary pressures again.
“The RBI should reduce interest rates to gradually reverse the impact of the 13 interest rate hikes it has undertaken over the last two years,” said Chandrajit Banerjee, director general of Confederation of Indian Industry (CII).
“RBI should also implement measures to contain the sharp decline in the value of the rupee as this would exacerbate inflationary pressures and take away any gains from the moderation in global commodity prices,” Banerjee added.
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- Industry hails RBI intent not to hike rates further - Oct 25, 2011
- Rate hikes not curbing inflation, only hampering growth: Industry - Sep 16, 2011
- RBI keeps key rates unchanged as inflation outlook worsens (Lead) - Jul 31, 2012
- RBI set to again hike rates to tame inflation - Oct 24, 2011
- India's inflation soars to 7.55 percent in August (Lead) - Sep 14, 2012
- November headline inflation at 9.11 percent - Dec 14, 2011
- Inflation remains sticky, growth will moderate: RBI - Oct 24, 2011
- Interest rate hike will hurt growth, fears FICCI - Jun 15, 2011
- Rate hike will bring down inflation, hopes Pranab - Sep 16, 2011
- RBI may hike policy rates by 25 bps Tuesday - Jul 25, 2011
- India's Reserve Bank hikes key rates to tame inflation (Lead) - Jan 25, 2011
- RBI expected to cut key lending rates to spur growth - Jun 17, 2012
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