RBI likely to cut rates only in early FY13

By Arun Srinivasan

The average shortfall in banking liquidity for the month of December was Rs 116000 crores. Such liquidity deficit was witnessed despite the Reserve Bank of India (RBI) infusing Rs 41000 crores through Open Market Operations (OMO). So the big question is whether RBI would begin reversing its monetary policy by cutting the Cash Reserve Ratio (CRR) in the January 24th Policy? 

Monthly inflation for December 2011 was seen at 7.47% (Y-o-Y) compared to market expectations of 7.40%.  The fall was primarily on account of a positive base effect and a fall in primary articles inflation. Notably, the manufacturing inflation remained stubborn at 7.41% (Y-o-Y) with a month on month increase of 0.57%. The rebound in core inflation has been underway for a few months now, keeping the core inflation print sticky even with falling headline rates. The sharp fall in rupee over the past few months has also contributed to the stickiness of manufactured products inflation. Core inflation continues to remain above RBI