Team Blitz India
NEW DELHI: The Reserve Bank of India (RBI) is likely to keep the interest rates on hold well into this year as a weak election win for Prime Minister Narendra Modi’s ruling party fans fears of fiscal populism.
The central bank will probably leave the benchmark rate at 6.5 per cent for an eighth straight meeting on June 10, according to all 34 economists polled by Bloomberg. The six-member monetary policy committee is also expected to retain its stance.
The decision comes just days after Modi’s Bharatiya Janata Party lost its majority in Parliament and is forced to share power in a coalition government. Economists say there’s a risk a BJP-led government may veer from its fiscal path by raising welfare spending to shore up support, an approach that may stoke inflation that’s already above the RBI’s target.
“The central bank will have to watch the fiscal outcome of the next month’s budget now more closely before considering the monetary policy path,” said Citigroup Inc. economists Samiran Chakraborty and Baqar Murtaza Zaidi. “A status quo in the June policy is an even more likely outcome with the focus on reducing volatility in uncertain times.” they said.
Economists had already been pushing their forecasts for rate cuts to later in the year, predicting the RBI won’t move until the US Federal Reserve pivots.
With a hold almost certain, traders will be turning their focus to Governor Shaktikanta Das’ views on the new government and its fiscal policy in the upcoming budget. The RBI’s record Rs 2.1 trillion ($25 billion) dividend to the Government, though, gives it some buffer to boost spending.
Traders will also be watching out for RBI’s comments on system liquidity ahead of India’s inclusion in JPMorgan Chase & Co.’s bond index later this month.
