RBI’s next monetary policy meet raises rate cut anticipation

In anticipation of the Reserve Bank of India’s (RBI) next monetary policy meet scheduled during the early week of next month, market participants have been wondering if the central bank will decide to cut the benchmark interest rate. There seem to be many factors in favour of an interest rate cut. In the previous monetary policy meeting, RBI had left the repo rate unchanged at 6.25%, reverse repo rate at 6%. 
 
Inflation has been lower, well below the RBI’s inflation target of 4% in medium term. The official Wholesale Price Index (WPI) for all commodities for the month of June 2017 declined by 0.1% to 112.7 (provisional) from 112.8 (provisional) for the previous month. Consumer Price Inflation (CPI) eased to 2.99% in April from 3.89% in March, 2017.
 
The monsoon performance so far has been in line with the expectations. Average monsoon rainfall in the country may further bring down the food prices. GST rates were neutral to the inflation outcome.
 
Lower inflation rates can give the central bank enough room to cut the benchmark interest rates even as growth in the country has slowed down over the past four consecutive quarters. 
 
The International Monetary Fund (IMF) expects India’s economy to grow at a higher level of 7.2%.