Mumbai, Sep 16 (IANS) India’s central bank will conduct a mid-quarter review of its monetary policy for this fiscal Thursday noon amid signs of industrial revival and let up in inflation, even as the corporate sector hoped interest rates will stay unaltered.
This will be the second review of this year’s policy by Reserve Bank of India (RBI) Governor D. Subbarao. In the previous review July 27 it was decided to revisit the policy one-and-a-half months after each quarterly review.
Thursday’s review will come against the backdrop of a 63-percent jump in the output of capital goods, which pushed India’s industrial growth up by 13.8 percent in July, as against 7.1 percent in the previous month.
The annual rate of inflation based on wholesale prices has also declined to 8.51 percent in August from 9.78 percent in the previous month.
But the opinion is divided on what changes the central bank will make in its key lending and policy rates, with one section of experts betting on no change while another predicting some adjustments to tame inflation further.
‘It might be status quo,’ said O.P. Bhatt, chairman of the country’s largest lender, the State Bank of India, even as Ashvin Parekh of consultancy firm Ernst and Young had reasons to believe that interest rates may go up.
‘With 13.8 percent growth, the July industrial production numbers are indeed very encouraging,’ Parekh said. ‘This will lead the RBI to further hike the repo and reverse repo or short-term lending and borrowing rates by 25 basis points.’
The uncertainty was reflected in stock markets as well, where the benchmark sensitive index (Sensex) of the Bombay Stock Exchange (BSE) opened lower at 19,476.93 points Thursday, against the previous close at 19,502.11 points.
It fluctuated both ways thereafter, falling to 19,456.71 points, and then climbing up to 19,559.61 points. Some 90 minutes into trading, it was ruling at 19,507.63 points, with a marginal gain of 5.52 points, or 0.03 percent.
In the previous review, the central bank had stepped up its attack on rising prices and hiked two key short-term rates, while predicting an eventual increase in interest rates on loans and deposits, and also raising its forecast on inflation and growth.
The repurchase rate was hiked by 25 basis points to 5.75 percent and the reverse repurchase rate by 50 basis points to 4.50 percent with immediate effect.
The review had seen the fourth such rate hike since the apex bank decided to tighten its monetary policy in January — first on Jan 29, followed by another on March 19 and again on July 2 — to rein in inflation, which was in double-digit levels then.
Repurchase rate, often referred to as the short term lending rate, is the interest the apex bank charges on borrowings by commercial banks. A hike in this rate increases the cost of borrowing for banks, discouraging them to hunt for more funds.
Reverse repo rate, referred to as the short term borrowing rate, is the rate at which the central bank borrows money from commercial banks. A hike in this rate makes it more lucrative for banks to park funds with the central bank.
