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D. Subbarao in Mumbai on Monday. (Fotocorp)
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Mumbai, July 16: Reserve Bank of India (RBI) governor Duvvuri Subbarao today virtually ruled out the possibility of a rate cut at the July 31 monetary policy review meeting by underscoring the fact that the country’s headline and consumer price inflation rates were ruling way above the central bank’s comfort level.
There was optimism in some quarters that the RBI could trim the repo rate after inflation for June declined to 7.25 per cent.
The repo rate is the rate at which the apex bank provides liquidity to banks. It currently stands at 8 per cent.
Speaking at a function here today, Subbarao said the current stance of the RBI was to restrain demand and manage inflation expectations. He, however, hastened to add that these comments should not be interpreted as an indication that the forthcoming first quarter review of monetary policy on July 31 could mean status quo on key rates.
Although the June inflation number was lower than expected, the experts reckon that the apex bank will not go in for a rate cut at the monetary policy meeting later this month.
“The magnitude and timing of policy rate cut would be contingent on the extent of fiscal consolidation, evolution of the core and headline inflation once base effect wears off, crude, currency and global commodity prices driven imported inflation,” said Madhavi Arora, economist at Karvy Stock Broking.
Nomura economists Sonal Varma and Aman Mohunta added that though the June WPI inflation had come in lower than expected, it was still above 7 per cent and one data point was not indicative of a trend.
“Given the upside risks to inflation from the recent rebound in global commodity prices and a weak monsoon season, we expect all policy rates to remain unchanged on July 31. Eventually, rates have to come down. But for this scenario to play out, India’s inflation has to sustainably decline at or below 6.5 per cent,” they added in a note.
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