New Year may see lasting rate cut

Reserve Bank of India governor Raghuram Rajan on Tuesday indicated that a cut in interest rates may happen in a couple of months if current trends in disinflation and fiscal developments continue. While cheering the bond markets with promise of an early cut, Rajan also said that RBI and the government had found common ground on inflation targeting and addressing the issue of bad loans. Rajan also said that any rate cut he undertakes would signal a sustained reduction in rates Stock Market Trading Tips

In the fifth bi-monthly policy the RBI said that it will keep the policy repo rates under the liquidity adjustment facility (LAF) unchanged at 8% and keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of deposits. Explain the rationale behind the status quo, Rajan said "There is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public's inflationary expectations, as well as the success of the government's efforts to hit deficit targets. A change in the monetary policy stance at the current juncture is premature". 

While Rajan retained his credentials as an inflation hawk by refusing to cut rates despite falling inflation, he raised hopes with positive statements on a future rate cut."Iif the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle," Rajan said Financial Astrology Trading Tips


The governor also lashed out at corporates who were blaming the central bank for high interest rates charged on projects. "I see a whole lot of confusion on what rates RBI is responsible for and what for what rates corporate India is responsible for. The immense risk premium that is asked from certain corporates is because of the state of their leverage, because of the risks they have taken and because of their inability or unwillingness to repay. It should not be attributed to RBI. What we control is the risk free rate, what they control is the risk premium over that". The governor pointed out that if some borrowers in the power sector were paying 14% it was because of their risk premium, the basic interest rate as reflected by 10-year bonds was only 8% he said Commodity Trading Tips

Some believe that RBI will wait until the Union Budget in February 15 before announcing a rate cut in March. This would give the central bank enough time to factor in government's success in meeting fiscal deficit targets. In a poll conducted a couple of days before the policy, only four out of 45 economists polled by Reuters said that they expected the central bank to cut rates. Curiously, in the bond markets, yields fell to a 16th month-low on expectations that RBI would bring rates down. While stock markets were disappointed with the absence of a rate cut, bonds continued to rally following the governor's statement. The rupee also firmed up against the dollar to 

In its policy RBI retain its growth projections at 5.5% stating that GDP growth with pick-up in momentum through 2015-16 on the assumption of a normal monsoon and no adverse supply/financial shocks Jackpot Trading Tips