The chorus for a rate
cut is unlikely to prompt Reserve Bank of India (RBI) Governor Mr. Raghuram
Rajan to take any action at the bi-monthly review of its monetary policy on
December 2.
"The pressure
from all quarters is huge but Mr. Raghuram Rajan is unlikely to respond,"
a senior financial-sector player said.
Markets have the
habit of front-loading rate cuts, and it is no exception this time. Since
October 13, when the retail inflation data for September were release, yields
on the 10-year benchmark bond have softened by 0.23% to a 14-month low.
The expectation of a
rate cut has also gained momentum due to softening of crude oil prices, which
has fallen 14% since the previous policy review on September 30.
Economists say a
0.25% cut in interest rate at this juncture, which has already been factored
in, will not boost investments all of a sudden, given the structural
bottlenecks. And Rajan, who has a penchant for surprising the market, might
rather go for deep rate cuts when he has inflation firmly under his control.
But market players
say a closer look at the numbers shows why Rajan would refuse to budge on the
rate front this time.
Mr.RAGHURAM RAJAN'S 5
REASONS..!
1. COMMODITIES..
Fall in CPI-based inflation is due to
softening of commodity prices, and not because of demand compression
2. OIL
Global crude oil
price might not fall further; it could rather harden in the second half of
2015, reversing the inflation trajectory
3. FOOD
The decline in food
prices in September might not be repeated in the coming months
4. LOW BASE
The benefit of a low
base may not be there from Dec
5. THE US FACTOR
US Fed's action on rate is still awaited
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