The Reserve Bank is expected to keep key interest rates unchanged in the ensuing policy review meet early next month even as there has been weakening of growth momentum in India. According to Dun & Bradstreet, the impact of monsoon on food prices is yet to be realised and could be visible by the end of next month. Nonetheless, the moderation in demand is likely to keep the overall inflation subdued.
While there has been weakening of growth momentum globally and in India since last year, the business optimism levels now are at a multi-year low raising concerns over revival in growth, said Arun Singh, Chief Economist Dun & Bradstreet India.
“After the 75-basis points rate cut and initiatives for liquidity management, the RBI should wait for the transmission of policy rate cut and impact of monsoon on prices of agriculture products before considering any rate change,” Singh said.
According to him, the impetus to growth needs to be strong enough to pull up the optimism level of businesses and kick start growth momentum.
The IMF on Tuesday cut its growth forecast for India for this year and the next to 7 per cent and 7.2 per cent, respectively saying the GDP will now grow reflecting a weaker-than expected outlook for domestic demand.
According to Singh, the need is to ensure a revival in domestic consumption demand and investment will follow.
“While the monetary stimulus in terms of policy rate cut and liquidity infusion has already been taken, much depends on the road map set by the government for the next two-three months,” Singh said.
He added that given the fiscal constraints, the focus should be on increasing the efficiency levels of capital utilization and market-oriented reforms.
The next meeting of RBI’s Monetary Policy Committee is scheduled from August 5-7.
The central bank in the June policy review meet had cut interest rates for the third time this year.