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RBI unlikely to cut interest rates, CRR cut possible on Dec 18: BofA Merill Lynch

RBI unlikely to cut interest rates, CRR cut possible on Dec 18: BofA Merill Lynch

Bank of America Merrill Lynch in a research report has said the Reserve Bank of India (RBI) is likely to leave key policy rates unchanged in its next policy review on December 18.

Bank of America Merrill Lynch in a research report has said the Reserve Bank of India (RBI) is likely to leave key policy rates unchanged in its next policy review on December 18.

Reserve Bank Governor D Subbarao has resisted a widespread call for the growth-propping rate cuts for some time now, citing the elevated inflation.

Inflation as measured by all indices has remained elevated and Wholesale Price Index-based inflation has remained above RBI's comfort zone of 5-5.5 per cent for nearly three years now.

"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 ."

The report says RBI is expected to go for a 0.25 per cent cut in the cash reserve ration (CRR) - the portion of bank deposits parked with the central bank - in its mid-quarter monetary policy review to support growth and will resume cutting rates only from January, once inflation peaks off.

Over the past three months, the central bank has reduced CRR by 0.50 per cent to 8 per cent. But these cuts did not lead to an easing of overnight rates.

Though, RBI has finally decided to resume open market operations (OMOs) to ease liquidity, BofA ML said "Governor Subbarao may not want to take chances with RBI's inflation fighting image by cutting rates at 7.5 per cent inflation."

India is the only BRIC where lending rates are almost at their 2008 peak, the report said.

India had been growing around 8-9 per cent before the global financial meltdown in 2008. The growth rate in 2011-12 slipped to a nine-year low of 6.5 per cent.

According to the official data, the Indian economy grew by 5.3 per cent in the July-September period this year, while in the quarter ended June 30, the economy grew by 5.5 per cent.

With inputs from PTI

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Published on: Dec 10, 2012, 6:26 PM IST
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