The Reserve Bank of India (RBI) is expected to hold its policy
interest rate steady at its quarterly review next week, keeping pressure
on the government to reduce a ballooning fiscal deficit and take steps
to remove bottlenecks that are driving up food prices.
Of 20 economists polled by Reuters, 19 expect the RBI to keep its repo rate unchanged at 8 per cent on Tuesday. After the mid-quarter policy review in June, roughly one-third of respondents had expected a July rate cut.
The RBI, which said it "frontloaded" rate cutting in April with a steep 50 basis point drop, has stressed the need for the government to reduce its fiscal deficit and said high interest rates were not the key reason for slowing economy.
Asia's third-largest economy grew 5.3 per cent in the March quarter, its weakest showing in nine years.
Complicating the picture for policymakers are weaker-than-average summer monsoon rains, which are pushing up food prices and adding to inflation.
"The impact of inadequate rains is going to be felt on food prices, which poses an upside risk to inflation," said Shubhada Rao, chief economist at Yes Bank in Mumbai.
"Given that the government has not taken any concrete steps to address the supply side issues, or the fiscal pressures, the central bank is unlikely to ease rates at this moment."
In June, headline inflation rose 7.25 per cent, while the consumer price index remained sticky at 10.02 per cent.
Worryingly, pressure on food prices could mount as this year's monsoon season—running from June to September—has had patchy rainfall distribution so far with an overall level more than a fifth below normal.
With inflation mostly a supply driven factor, the RBI has pressed the government to take specific measures to improve productive capacity, encourage investment and remove costly fuel subsidies.
Economists still expect the RBI to cut rates to support sagging growth, but later in the fiscal year ending in March 2013.
"They would ease, but only when it really becomes necessary. They will do it later, but not right away," Rao said, who expects a 50 basis point cut during the remainder of 2012-13.
A Reuters poll last week showed a median expectation of the repo rate at 7.5 per cent by March 2013.
India's corporate sector has clamoured for the RBI to ease policy, to help firms weather the economic slowdown.
As Europe's debt crisis drags on and the U.S. economy slows, weighing on Asia's exports, economists are cutting growth forecasts for most Asian economies, a recent Reuters poll showed.
Of 20 economists polled by Reuters, 19 expect the RBI to keep its repo rate unchanged at 8 per cent on Tuesday. After the mid-quarter policy review in June, roughly one-third of respondents had expected a July rate cut.
The RBI, which said it "frontloaded" rate cutting in April with a steep 50 basis point drop, has stressed the need for the government to reduce its fiscal deficit and said high interest rates were not the key reason for slowing economy.
Asia's third-largest economy grew 5.3 per cent in the March quarter, its weakest showing in nine years.
Complicating the picture for policymakers are weaker-than-average summer monsoon rains, which are pushing up food prices and adding to inflation.
"The impact of inadequate rains is going to be felt on food prices, which poses an upside risk to inflation," said Shubhada Rao, chief economist at Yes Bank in Mumbai.
"Given that the government has not taken any concrete steps to address the supply side issues, or the fiscal pressures, the central bank is unlikely to ease rates at this moment."
In June, headline inflation rose 7.25 per cent, while the consumer price index remained sticky at 10.02 per cent.
Worryingly, pressure on food prices could mount as this year's monsoon season—running from June to September—has had patchy rainfall distribution so far with an overall level more than a fifth below normal.
With inflation mostly a supply driven factor, the RBI has pressed the government to take specific measures to improve productive capacity, encourage investment and remove costly fuel subsidies.
Economists still expect the RBI to cut rates to support sagging growth, but later in the fiscal year ending in March 2013.
"They would ease, but only when it really becomes necessary. They will do it later, but not right away," Rao said, who expects a 50 basis point cut during the remainder of 2012-13.
A Reuters poll last week showed a median expectation of the repo rate at 7.5 per cent by March 2013.
India's corporate sector has clamoured for the RBI to ease policy, to help firms weather the economic slowdown.
As Europe's debt crisis drags on and the U.S. economy slows, weighing on Asia's exports, economists are cutting growth forecasts for most Asian economies, a recent Reuters poll showed.
