Click to play videoMumbai: The Reserve Bank of India will come out with its credit policy on Tuesday. But will the RBI follow the US Federal Reserve and cut rates? According to a credit policy poll, top bankers are split right down the middle.
The poll conducted by Network18 indicates that the market is divided in their opinion as to what RBI Governor YV Reddy has in mind.
Reddy is besieged with several issues as he readies to present his monetary policy review on January 29. The Governor will have to seriously consider the unexpected three-quarter percentage point rate cut by the Federal Reserve and prepare for a much worse global economic outlook.
So what top bankers expect Reddy to announce on Tuesday? According to the findings of a Network18 poll, 56 per cent of the bankers polled do not expect Reddy to cut the key signalling rate — i.e. the repo rate.
An even bigger majority of 76 per cent of bankers polled believe that Reddy will not cut the reverse-repo rate either. They feel despite higher interest rate, the economy is clocking a growth of over 8.5 per cent and inflation is within RBI's comfort zone of 3-3.5 per cent. And so the RBI Governor is likely to maintain status quo.
As many as 99 per cent of the market experts feel that he will not tinker with the Cash Reserve Ratio either as, at the moment, he has other instruments like MSS (Market Stabilisation Scheme) bonds to control liquidity in the banking system.
There are also 44 per cent bankers and market participants who expect the RBI Governor to cut the repo rate. They point out that given the widening interest rate difference between US and India, lack of a rate cut will only bring more dollars in and compound the problems of the RBI and the economy.
They also argue that with industrial production slowing down from 12 per cent to 5.3 per cent, a rate cut is needed to keep the growth rate going at 9 per cent. The Governor himself has gone on record to say that uncertain global economic factors will play a large role when he drafts his policy.
Governor Reddy has a record of surprising markets, which is why probably, while an overwhelming majority in the market is hoping for a cut, only a minority is actually expecting it.
Poll Results:
1. Will RBI Cut Reverse Repo?
Yes: 23.3%
No: 76.6%
2. Will RBI Cut Repo Rate?
Yes: 43.3%
No: 56.6%
3. Will RBI Change CRR?
Yes: 1%
No: 99%
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