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27 September 2017
 |
| RBI (The Total Investment & Insurance Solutions) |
The
Reserve Bank will hold policy steady at its October 4 meeting, and well past
next year, amid weak economic growth and signs inflation may soon overshoot its
target, a Reuters poll found.
Asia`s third-largest economy started losing
momentum after the government scrapped 86 percent of currency in circulation
late last year, hurting demand in India`s cash-reliant economy, and the
slowdown was compounded by the implementation of a new tax system.
In August, despite a neutral policy bias,
India`s central bank cut the key policy rate after lowering its economic growth
forecast in June to 7.3 percent from 7.4 percent for the current fiscal
year.
The latest poll of 60 economists showed
although the RBI will hold its key repo rate at a seven-year low of 6 percent
next week, it will downgrade its growth forecast again following disruptions
caused by the new tax.
Introduced July 1, the national tax system
caused confusion over product pricing and pushed activity in India`s private
sector into contraction.
Economic growth slowed to a three-year low
last quarter, prompting some economists to lower their outlook.
"RBI has already been highlighting
downside risks to growth, and that bias should now crystallize in the updated
forecasts," said Abhishek Upadhyay, economist at ICICI Securities PD.
However, lacklustre growth and inflation
hovering below the RBI`s 4 percent medium-term target - annual retail inflation
was 3.36 percent in August - would not be enough to drive the RBI into action,
economists said.
Nearly two-thirds of forecasters who answered
an extra question said there was a chance consumer inflation would overshoot
the RBI`s medium-term target this fiscal year and medians suggest the Bank would
hold policy until at least April 2019, the end of the forecast horizon.
The reverse repo rate is expected to be left
at 5.75 percent across the same period.
However, not all economists are convinced the
RBI will keep policy rates unchanged.
Credit Agricole CIB, Geojit Financial
Services and Trust Capital predict a 25 basis point trim in the repo rate next
week. Over a quarter of economists polled expect a cut by year-end.
"Growth is below the central bank`s
expectations and they will react to that by their easing policy stance as
strong annual growth is not achievable after what happened in the first quarter
of this fiscal year," said Darius Kowalczyk, senior economist at Credit
Agricole CIB.
"So in order to stimulate aggregate
demand, they will lower nominal rates and the time to do this is running out as
inflation is rebounding."The Total
Investment & Insurance Solutions
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