Policy Rates: What RBI tends to decide?

The reserve bank of India is likely to keep interest rates unchanged on Wednesday, the decision is likely to be a relation to  Governor Ajit Patel’s press conference. This is his first press appearance after the sharp debate with the central government over the autonomy of the reserve bank.

The RBI After increasing the interest rates two times this year. It will keep its repurchase rate constant at 6.5 %, according to 48 out of 52 economists surveyed by Bloomberg. This decision can satisfy the interests of the government, which is looking for more support from banks to continue lending.

The RBI will issue a statement today, this afternoon, in Mumbai and after this, there will be a follow-up to Patel’s Press conference. This statement issue is bound to cover such topics:

Liquidity Rates

Since October, liquidity in the financial system has declined to a great extent, which made the lenders raise the rates. some of the reason encompasses sales tax payments to the government, a seasonal rise in loans and intervention by the central bank in the exchange market to hike the value of the rupee.

The RBI may seek to assure investors about liquidity conditions by stepping up bond purchases and pumping more cash in the system. The Central bank is expected to increase its bond purchases to Rs 50,000 crores per month in the March quarter, as per Indranil Sen Gupta, Indian Economist at Bank of America, Merrill Lynch

Slower GDP

Gross Domestic Product growth in the period of July-September period was depressing, slowing down to 7.1 percent from 8.2 percent in April-July period. While activity might re-bounce as some high-frequency data suggest, consumption is likely to suffer due to diminished liquidity conditions for which the banking sector is responsible.

Prachi Mishra, the chief India economist at Goldman Sachs Group Inc, estimates the cash crunch can lower the growth forecast for the current fiscal year by 12 to 21 basis points.