Will Subbarao now bring cheer on Sept 17 ?

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Will Subbarao now bring cheer on Sept 17 ?
The UPA government in a span of two days has unleashed a wave of reforms that has seen markets turning buoyant and sentiments soaring. All eyes are now on Reserve Bank of India (RBI) Governor D Subbarao to see if he cuts repo rates at the RBI's Monetary policy Review on September 17, 2012.

A repo rate (rate at which the RBI lends to banks) cut would bring down interest rates in the economy and propel economic growth rates higher.

However, RBI Governor Subbarao would have to weigh a rate cut against the elevated levels of inflation on September 17. August inflation data was not too encouraging with the wholesale price index inflation coming in at 7.56%, higher than the July inflation of 6.86%.

Moreover, with the government already announcing a diesel price hike, it is likely to fuel inflation further in the economy and tie the hands of the RBI Governor in cutting rates.

Infact, Subbarao has made it abundantly clear in the past that his prime objective has been to fight inflation over growth. It's unlikely that the RBI Governor would act on September 17, 2012. In fact, he might wait until October to see how inflation in the economy pans out before taking any decision.

Growth in the economy has been moderating and industry has over the last few quarters been clamouring for a rate cut. However, in the last two policy reviews, the governor has not obliged and has maintained the status-quo. It may not be a close call on Sept 17, as most of the economists are expecting the RBI to keeps its policy rates unchanged.


Read more about: monetary policy review
Story first published: Saturday, September 15, 2012, 9:57 [IST]
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