Majority of economists and financial market observers expect Reserve Bank of India (RBI) to cut policy repo rate by 25 basis points on January 29 to 7.75 percent.
The decline in inflation gauge based on wholesale price index (WPI) and the government’s resolve to reduce fiscal deficit increased expectation that the central bank would reduce policy rate in the impending monetary policy review.
Wholesale price inflation, the main price gauge, fell to a three-year low of just over 7 percent in December. The RBI cannot be very aggressive in rate cuts.
In April 2012, the central bank reduced policy rates by 50 basis points but warned at the time there would be limited scope for further cuts.
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