Stating that status policy stance was expected given the upside risks to inflation and there is only slim chances of a rate cut this year, analysts said any change in the policy hinges on the way inflation and growth trajectories evolve. “Likelihood of a rate cut during the remaining months of this fiscal is bleak unless retail inflation surprises on the downside and comes lower than RBI’s expectations/guidance,” Sunil Kumar Sinha, principal economist at India Ratings said in a note.
Its bigger rival Crisil said the growth numbers in the second quarter will play an important role, hinting that RBI will move in to accommodate the concerns.
“If the risks to growth rise, and inflation undershoots monetary policy committee’s forecast, then there is a possibility of a rate cut. The second-quarter GDP data will be a key deciding factor,” it said, adding “if growth sulks down further, it can potentially bring down core inflation, too. A dip in core can provide a faster downside to overall inflation.”
Care Ratings expects no change at the next policy review in December but there can be some action in the March quarter provided inflation remains within 4 per cent band. “The scope for further rate cuts in this year would be restricted to 0.25 per cent, which would materialise only if the inflation trajectory significantly undershoots expectations,” domestic rating agency Icra chief executive Naresh Takkar said.
Sinha said even through the RBI is acknowledging that the output gap is widening but it is still not sure whether this is happening due transient or sustained headwinds and therefore would like to remain in wait and watch mode.
But RBI’s guidance on inflation is more clear when it says retail inflation has risen by around 2 percentage points in two months, excluding food there is a generalised momentum building up in prices of domestic items driven by crude oil and farm loan waivers by states and fiscal slippages at centre/state will add to this momentum, he added.