RBI Monetary Policy Review: Five major reasons why Interest rates likely to remain unchanged

The Reserve Bank of India (RBI) under the aegis of Governer Urjit Patel shall make its bi-monthly monetary policy announcement later on Wednesday. The apex bank is expected to maintain the status quo on the key policy rates.

The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, began its 2-day meeting on Tuesday amid experts saying that the central bank is likely to hold key rates even as the government is making a case for a lower interest regime citing low inflation. 

The resolution of the MPC will be placed on the Reserve Bank of India website at 2.30 pm on June 7, 2017, reported RBI in its press release.

Here are five reasons why the RBI is unlikely to cut the interest rates

1. RBI Monetary PolicyA Reuters poll showed 56 of 60 analysts expected the RBI monetary policy committee to keep its repo rate unchanged at a 6-1/2 year low of 6.25 percent for a fourth meeting in a row. They also expected the reverse repo rate to be left at 6.00 percent.

2. Finance minister Arun Jaitley on Monday made a strong case for cut in interest rates, saying inflation has been under control for long and is likely to remain so on the back of good monsoon while there is no likelihood of a spike in oil prices. 

3. Current macroeconomic conditions are favourable for the Indian economy. The latest consumer price index inflation stands at 3 per cent which is not a worrisome issue for the RBI. It is likely to move lower in short term, as reported by market observers. 

4. IMD has forecasted normal rainfall in monsoon this year. Rupee is getting stronger against US Dollar and is now one of the most active currency of Asia. Stable commodity prices and less inflationary pressure expected after switching to unified tax regime, Goods and Services Tax (GST), are likely reasons for RBI to maintain its neutral stance in upcoming monetary policy decision.

5. India Inc is also pitching for a rate cut to boost GDP growth that fell to 7.1 per cent in 2016-17 from 8 per cent in the previous fiscal.