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Jun 20, 2012, 08.23 AM IST
The Reserve Bank of India will announce its mid quarterly policy today. It is not the one in which the RBI used to announce very big decisions but this comes after the April policy and lot of things have happened in between to change India’s macroeconomic contours, reads CNBC-TV18's Latha Venkatesh.
For instance, in April it was a given that India would grow by about 7% in FY12 and by 7-7.5% in the current year. But, the fourth quarter GDP number came in at disappointing 5.3% and the moral of many businessmen has been shattered by that.
Also, US rating agency S&P’s warning put India on a negative watch although with investment grade. Inflation has also not cooled off much. The May inflation data at 7.5-7.55% is a little higher than April and more importantly it is accompanied by consumer price inflation, which is 10.5% for April itself.
Today after the policy the consumer price index (CPI) number for May will be announced and that could well read at 10%. All this will constrain the RBI from announcing too much by way of monetary loosing even if it wants to support growth.
A CNBC-TV18 poll shows that 90% of the people expect a repo rate cut of 25 bps . Only 40% expect a CRR cut, but 30% expect both a CRR cut as well as a small repo rate cut. A CRR cut was very much publicized after the SBI chairman asked for a 100 bps cut.
Bankers especially State Bank of India (SBI) said that they will pass on the cuts in the form of lower lending rates only if the CRR is cut. So much depends on how serious the RBI is about monetary transmission. If they are then perhaps the CRR will be an instrument.
From an economist angle, it is still very unclear whether the RBI has much elbow room to cut rates although growth demands some kind of monetary loosening and inflation is not permitting it.
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