Rajan's last supper to hold the nerves of investors

One of the most aggressive Governors of our times, Raghuram Rajan will be announcing his last policy amendment on Aug 09 during the market hours. He is known for throwing up surprises throughout his 3 years’ term. However, he is expected to keep the rates unchanged in the third bimonthly policy owing to higher CPI and WPI data. However, the manufacturing and service output data in July has encouraged the country with robust numbers, which may refrain him from taking any hawkish move for now.

CPI has remained at 5.7 per cent in June and WPI too has risen to 1.62 per cent in June as against 0.79 per cent in May. The food inflation has peaked highs at 8.18 per cent, which stands as the biggest concern for any further decision on the rate cut.

However, since June, monsoon has seen an excess of 1 per cent rainfall with 31 per cent of the country covered. The above normal monsoon has shown a jump in sowing of pulses and may help calming the inflation with reduced prices. This may call for a rate cut.

With the clearance of GST, the government also announced inflation target of 4 per cent with variation of +/-2 per cent till 2021. The lending rates have not proportionately declined as has been the decline in rate cuts by RBI, which has discouraged credit flight. Any cut in the rate will provoke banks to cut their lending rates leading to reduction in the money market deficit.

Following in the footsteps of the Bank of England and Australia cutting rates, RBI too may take a step forward. Its all in the loom for now. Let’s see whether Rajan bestows a return gift with the cut or just enjoys the last supper on a dovish note.