The minutes of the recent Monetary Policy Committee (MPC) meeting suggest that the Reserve Bank is likely to tread a cautious path and there is little chance of a rate cut in the near term as inflation is expected to inch upwards, says a report.
According to a Kotak Economic Research report, besides inflationary pressures, fiscal slippage concerns and possible volatility in global markets worried some MPC members.
“The minutes of the October MPC meeting reinstated the cautious approach of most members as inflation is likely to inch upwards,” Kotak Economic Research said in a note. They suggest that growth is expected to recover cyclically in the second half of the current fiscal, but factors like low capacity utilisation, debt overhang of corporate and stressed assets of banking sector may act as structural constraints to growth.
The reports expects retail inflation to average around 3.3 per cent in this fiscal, noting however that directionally inflation will be trending higher and core inflation too will likely stay sticky around 4.5 per cent.
“With RBI fixated on the 4 per cent target on a durable basis, and with plausible case of fiscal slippage, it looks less convincing for a policy easing in the near term, unless data surprises on the downside significantly,” the report noted.
Earlier this month, Reserve Bank of India kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 per cent for the current fiscal.
It also raised its inflation forecast to a range of 4.2 to 4.6 per cent during remainder of current fiscal as against 4 to 4.5 per cent previously.