RBI Unlikely To Cut Interest Rates Before April

Posted By: Religare
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According to analysts, the Reserve Bank of India (RBI) is not likely to oblige with another interest rate cut until next month as it weighs the government's fiscal mathematics as announced in the Union Budget by Finance Minister Arun Jaitley last week.

RBI Unlikely To Cut Interest Rates Before April

Even as it increased allocations for spending on infrastructure and rural sector, the NDA government in its Union Budget 2016-17 maintained its fiscal deficit target at 3.5 per cent of the country's GDP in FY 2016-17, the least since 2008, while that for the ongoing fiscal was retained at 3.9 per cent.

The NDA government's commitment to stick to fiscal prudence raised hopes that the central bank will soon ease monetary policy in the near-term to help prop up investment and growth in Asia's third biggest economy.

Speculation is rife that Raghuram Rajan and his fellow RBI policymakers will probably slash the repo rate by 25 basis points at the RBI's next meeting on April 5, 2016.

At its February 2 meet, the RBI kept interest rates unchanged and tied further monetary easing to the government's progress on fiscal consolidation.

Despite higher spend on wages and salaries of public sector employees and armed forces, and increased expenditure on the rural sector, Jaitley's acheievement of the fiscal gap goals will probably require a successful government disinvestment program which could run into rough weather yet again on account of the global stock market turmoil, making the RBI slightly skeptical of the centre's optimism on the fiscal front.

Dion Global Solutions

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