Opinion: Governor, Take The Bull by the Horns

(Sanjeev Bhasin is an independent analyst)

Reserve Bank Governor Raghuram Rajan is likely to hold repo rate in his policy announcement today. The chances of a rate cut are slim, but Dr Rajan is known to surprise markets.

In my view, the Governor must cut rates because,

1) Consumer price inflation hit a 19 month low of 7.8 per cent in August and even though seasonally it may spike a bit due to rainfall shortage and upcoming festival demand, it will rise only marginally.

2) Factory output slowed down in August and a rate cut can revive sentiments. It could also add colour to the festive season.

3) Extended weakness in global commodity prices has helped alleviate RBI's concerns on the fiscal side. Current account deficit and fiscal deficit are likely to narrow further.

4) India's peers are struggling. Brazil is reeling under severe debt, Russia under sanctions, while China is in the midst of a concerted slow down. A rate cut will give boost to Indians amid a difficult international climate.

The Governor should do away with small tinkering in CRR and SLR and go ahead and cut the repo rate. This could prompt some banks to cut the lending rate, which will revive credit and demand.

So go ahead Governor take your call and actually take the bull by the horns just as Prime Minister Narendra Modi embraced the "wolverine" (Hugh Jackman) in a packed Central Park.

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