RBI Governor Rajan to Announce RBI Monetary policy Review on Tuesday

Reserve Bank of India Governor Raghuram Rajan is due to announce the second bi-monthly monetary policy review of the fiscal on Tuesday, at a time when he has become the focus of controversy sparked by attacks for failure to lower interest rates and boost the economy.

Making RBI’s first policy review of the finacial year in April, Rajan had cut the central bank’s repo, or short term rate at which it lends to commercial banks, by 25 basis points to 6.5 per cent.

It also introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead. RBI narrowed the policy rate corridor to 0.50 per cent from the earlier 1 percentage point, which resulted in the reverse repo rate – at which banks can park excess funds with the RBI – being reset at 6 per cent.

Expectations of a rate cut at RBI’s Tuesday policy meeting are lower after retail inflation rose to 5.39 per cent in April, which was above Rajan’s near-term target of 5 per cent by March 2017.

However, latest official data showed India was one of the world’s fastest growing economies in the March quarter, with GDP growing at a rate of 7.9 per cent.

On the other hand, making the case for a rate cut, growth in India’s private sector output declined in May as manufacturing and service sectors lost momentum in conditions of softer domestic demand, while services slowed sharply to a six-month low, a business survey on performance of the services sector showed on Friday.

 

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