The government expects a helping hand from the Reserve Bank of India in the form of an interest rate cut in the next monetary policy review on Wednesday to boost growth which fell to a three-year low of 5.7 percent during the June quarter.
Several experts and industry bodies too have made a strong case for lowering of the key interest rate in view of subdued inflation and the urgency to propel economic growth which appears to be reeling under the impact of demonetisation and Goods and Services Tax implementation.
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However, bankers are of the view that the RBI would maintain status quo as inflation has witnessed an increase.
According to a State Bank of India report, the RBI is likely to maintain status quo on its key lending rate as it is stuck in a conundrum of low growth, mild inflation and global uncertainties.
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It said that against the background of flexible inflation targeting, the obvious question that arises is choosing between the move towards the 4 percent inflation target swiftly or staying in the inflation band.
We expect the RBI to stay on hold at the upcoming meeting as rising incoming inflation and projections of further acceleration in inflation ahead will mean that there would be limited space for further easing.Morgan Stanley Research Report
Last week, a top finance ministry official said there is scope for an RBI rate cut at the next policy review as retail inflation continues to be low.
In its last policy review in August, the RBI reduced the repo rate by 0.25 percent to 6 per cent in August, citing reduction in inflation risks. The rate cut was the first in 10 months and brought policy rates to a near 7-year low.
However, retail inflation rose to a five-month high of 3.36 percent in August due to costlier vegetables and fruits.
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The consumer price index (CPI) based inflation was 2.36 percent in July.
The Monetary Policy Committee of the Reserve Bank is scheduled to come out with next bi-monthly monetary policy decision on October 4.
India Inc. has already made a pitch for rate cut by RBI to perk up economic activity.
Assocham has written to the RBI to cut the interest rates at least by 25 basis points, given the challenges being faced by the economy which needs immediate measures for revival of growth.
“At least 50 basis points elbow room can be taken with regard to 3.2 percent fiscal deficit for the current year and the next financial year,” the chamber said.
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