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RBI to go for status quo in Aug: SBI

RBI to go for status quo in Aug: SBI
Highlights

The Reserve Bank of India RBI will go for status quo in key policy rates in its August policy review, the economic research department of countrys...

Mumbai: The Reserve Bank of India (RBI) will go for status quo in key policy rates in its August policy review, the economic research department of country's largest lender SBI said on Tuesday. The call is contrary to the expectations of a majority of analysts predicting for another hike given the rise in inflation lately, including domestic ratings agency Icra which came out with its expectation of a hike today.

“We believe August rate decision is a close call, though we believe status quo rather than a hike looks the best option,” the SBI economists said in a note. It added that the only reason why the RBI may go for a hike will be “to satiate the self-fulfilling prophecy of market expectations” of a rate hike to stem the rupee depreciation.

The note said risks to inflation, which rose to five per cent for June, are evenly balanced, and hike in minimum support prices (MSP) for agri commodities would only statistically push up consumer price inflation by 0.73 per cent. However, it added that such an eventuality is unlikely. It said the impact from MSP can also be negated by the decline in oil prices which have given a breather to the economy.

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