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Thursday, 8 June 2017
RBI likely to keep rates on hold, say economists
New Delhi, June 6:
The RBI, in its second bi-monthly monetary policy review to be announced
tomorrow (June 7), is likely to keep rates unchanged, according to most
Rating agency CARE’s Chief Economist Madan Sabnavis said in a report
that he expects a 25 basis point (bps) cut in October when the inflation
picture becomes clearer.
For now, he expects no change in repo rate at 6.25 per cent, although
CPI inflation is down, oil prices are stable and there is moderation in
Bank of America Merrill Lynch Economist Indranil Sen Gupta expects the
RBI to turn dovish on Wednesday in order to be open for a 25 bps cut in
its next review in August, provided rains are normal.
This, he felt, would signal a much-needed bank lending rate cut before
the busy industrial season sets in during October. Although slow growth
and soft inflation provide conditions for a cut now itself, he expects
the RBI will wait for clarity on the monsoon as well as transfer of the
demonetisation dividend, which it estimates at around ₹60,000 crore.
“We are tracking May CPI inflation at about 2.5 per cent, with daily
data showing food inflation continuing to fall even in June on a good
summer rabi harvest. The India Met has also grown more confident of its
96 per cent normal rainfall forecast, with monsoons hitting the Kerala
coast. Core CPI inflation has also slipped to a low 4.1 per cent.
“Second, we do not see the output gap closing any time soon with high
rates constraining old GDP series growth, at a sub-potential 5.5-6 per
cent. Finally, we do not see material risk of second round inflation
effects from the house rent allowance (HRA) hikes by the Seventh Pay
Commission as the first round effect itself was mostly statistical,” Sen
Gupta said in a report.
Bank of Baroda’s Chief Economist BS Misra, however, expects a 25 bps cut
in policy rate tomorrow, citing the subsiding of inflationary pressure
and the fact that growth needs a shot in the arm.
He said the on-time arrival of monsoon, the inflation neutral GST rates,
cautious approach of the US Fed to further hikes and soft oil prices,
which are expected to be range-bound, augur well for a cut in rates now.