The Reserve Bank of India headquarters in Mumbai. (File | Reuters)
The Reserve Bank of India headquarters in Mumbai. (File | Reuters)

RBI may keep policy rates unchanged in August: HDFC Bank

RBI’s decision to increase key interest rates by 0.25 per cent in June also reflected a strong vote by analysts favouring an interest rate hike.

CHENNAI: The Reserve Bank of India’s six-member credit policy panel, headed by governor Urjit Patel and three external experts, is expected to keep its key interest rates unchanged at the monetary policy review scheduled in August, a report by HDFC Bank revealed on Friday.

RBI’s decision to increase key interest rates by 0.25 per cent in June also reflected a strong vote by analysts favouring an interest rate hike. However, data releases in the same month showed a hardening of interest rates. As the monetary policy meeting in August nears, the divide on the call seems to be revealing itself. Economists at the country’s largest lender SBI had also said that the RBI may go for a status quo, according to the report.

“It’s a close call and a tough balancing act, but we expect the RBI to tilt in favour of a ‘hold’,” HDFC’s in-house economists said in a note. While the risks associated with inflation still persist, the rise in food prices, in the last two months, has been lower than reflected in the past patterns, the private sector lender’s report acknowledged.

HDFC’s report also said that RBI’s decision to wait and watch on the uncertainty regarding the MSP rate hike is prudent as rainfall distribution, procurement for items other than rice and wheat will decide the way forward.

“The sub-par food inflation can offset the likely impact of hike in minimum support prices (MSP) for food grains announced earlier this month and also the elevated core (excluding food and fuel) inflation,” it revealed.

Further, the recent stabilisation in the Rupee, which has been seeing a pattern of volatility, and a gradual slowdown in the movement of oil prices have pacified any decision from the RBI to change interest rates, HDFC Bank said.

The report also pointed out that it expects a sharp fall in headline inflation to 4.4 per cent in July from the 5 per cent in June, which had led to voicing of concerns.

However, the RBI is mandated to get inflation at a level of 4 per cent in the medium term as per an agreement signed with the government. The monetary policy committee’s three-day meeting will begin on July 30 and announce its decision regarding the key interest rates on August 1.

Related Stories

No stories found.
The New Indian Express
www.newindianexpress.com