RBI may keep key interest rate unchanged tomorrow

The Reserve Bank of India may maintain the status quo with regard to the key interest rate in its monetary policy review tomorrow in view of the need to curb inflation, which has remained stubbornly high.

RBI Governor Raghuram Rajan yesterday called on Prime Minister Narendra Modi and is believed to have discussed the macro-economic situation.

Rajan kept the policy rate unchanged at 8 per cent at the previous review on April 1 as inflation, especially of food items, hovered at over 8 per cent. Food inflation in April stood at 9.66 per cent and retail inflation at 8.59 per cent.

The bi-monthly policy review tomorrow is the first after Modi assumed office on May 26.

Finance Minister Arun Jaitley, in a Facebook posting, has stressed on reviving growth momentum and containing inflation.

India's economic growth remained below the 5 per cent mark for the second year in a row at 4.7 per cent in 2013-14, although industry is hopeful of a rebound with a stable government headed by Modi.

The RBI is "expected to keep the interest rates unchanged" tomorrow, Senior Economist with Dun & Bradstreet India Arun Singh said.

"A credible fiscal consolidation plan, coupled with tangible measures to bring down inflation by the new government, might lead to an easing of monetary policy earlier than expected," he added.

Indian Overseas Bank Chairman and Managing Director M Narendra said the RBI is likely to maintain status quo as inflation is still high and there is a threat of the monsoon being weak.

An emerging risk on the inflation front is the likelihood of a deficient monsoon, which could lead to a surge in food inflation and affect growth adversely.

The India Meteorological Department has indicated a 60 per cent probability of the El Nino weather phenomenon this year along with a below-normal monsoon.

The RBI has increased the key repo rate three times since Rajan took over as Governor in September.

After meeting Jaitley last week, Rajan had said fighting price increases is a priority and the central bank has always maintained a balance between the need to check inflation and prop up growth.

Industry bodies are clamouring for a rate cut to boost growth.

Assocham said the low level of wholesale inflation of items such as wheat, pulses, vegetables and oilseeds would give extra room to the RBI to be accommodative.

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