New Delhi: With inflation and global crude oil prices inching up, the Reserve Bank of India (RBI) is widely expected to keep its policy interest rate unchanged at its bi-monthly monetary policy review for the current fiscal on Tuesday.
RBI Governor Raghuram Rajan has reduced the benchmark interest rate by 1.5% since January 2015. Since then, he has been persuading banks to fully transmit the benefit of the policy rate cut to customers.
The review could also turn out be the last policy anchored by Rajan if the proposed Monetary Policy Committee (MPC) is put in place before the next review due on August 9.
The six-member MPC will include RBI Governor and three nominees of the government, which has a mandate to bring consumer or CPI inflation to the pre-set target.
Growth of 7.9% in the March quarter cemented India's ranking as the world's fastest growing large economy, yet it needs even faster growth to create jobs for millions of youngsters joining the workforce.
Though private investment is subdued, the RBI's priority is meeting inflation targets of 5% by March 2017 and 4% over the medium term.
Annual consumer price inflation accelerated to 5.39% in April, crude prices are well off January's more than 12-year lows, a US rate hike is anticipated, and any shortfall in rain could ignite food prices.
For now, economists say, Rajan will focus on persuading banks to pass on benefits of earlier RBI rate cuts to borrowers, as they have only lowered lending rates by 65 bps since early 2015.
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