oppn parties RBI Might Maintain Status Quo on Rates

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RBI Might Maintain Status Quo on Rates

By Ashwini Agarwal
First publised on 2017-10-03 15:32:55

Since the economy is worse off than it was in August when the last policy review of the RBI’s Monetary Policy Committee (MPC) had taken place, one can safely assume that the body will either maintain status quo on key rates or might even take a hard stance. Ideally, a rate cut is the prescribed medicine for a depressed economy. But India is different and a standalone rate cut, without massive stimulus from the government, is unlikely to help.

The overall mood in the economy is depressed. Inflation has increased on the back of rising food prices. Hence, the MPC will definitely downwardly revise the growth figures. None of the other scenarios or figures provide any comfort. The monsoon was abundant, with only a 5 percent shortfall. But it was highly unevenly distributed, resulting in disturbing predictions for some crops in some regions. This does not augur well for food prices in the coming months, with shortages from drier regions adding to the pressure. It also means that at least some of the farm loans will again have a political write-off, further stressing the PSU banks.

The IIP has not picked up as fast as it was expected to. GST disruption, actual and feared has played a big part in this. The September & October figures may bring some cheer due to the huge festival demand, but on-ground whispers suggest that the growth in festival purchases, both of white goods and fashion apparels, was not as expected.

All this means that the wise heads who gather to debate on monetary policy have a tough task ahead of them. Hence, it is expected that they will play safe and let another two months go by with the same rates.