Reserve Bank of India expected to keep policy rates unchanged on Dec 18: Research
By Joseph Samson
Dec 11, 2012
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The banking and monetary regulator, Reserve Bank of India, may keep key policy rates at the same level for the upcoming mid-quarter monetary policy review. Although, it could slash the cash reserve ratio (CRR) by 0.25 percent to accelerate growth in the sector. The policy review is scheduled to come out on Dec 18.

This observation has been made in a research report released by Bank of America Merrill Lynch. It also added that the central bank will reduce rates only after January, once inflation slides down its peak. The report said, "We expect the RBI to resume cutting rates only from January - 75 basis points (0.75 per cent) till July - once inflation peaks off," the report said, adding that "RBI rate cuts will not transmit into lending rate cuts unless the liquidity situation improves."

It should be noted that over the last three months, RBI has slashed CRR by about 0.50 percent to 8 percent. But, these reductions could not help reduce the inflationary conditions in the economy. The report further said, "Governor Subbarao may not want to take chances with the RBI's inflation fighting image by cutting rates at 7.5 per cent inflation."   

The report also mentioned that amongst all of the BRIC countries, India is the only country whose lending rates are as high as they were back in 2008.          

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