RBI may not cut interest rates now: Experts

With the markets in chaos on Monday, investors are looking ahead to the Reserve Bank of India's credit policy meeting, which happens next Tuesday.

On Monday, the RBI Governor said the Central Bank is surprised by the intensity of the meltdown.

RBI Governor Y V Reddy said, “These financial uncertainties were not unanticipated; if you had closely followed the monetary policies. The intensity is somewhat not predicted nor was the duration expected.

So the outlook seems to be far more uncertain for the global situation than before. So we will have to analyse that. And we are undertaking a detailed analysis.”

What market men and dealers are telling us is that the Governor will give a lot of importance to global factors. He will see the global economic outlook. He will see food and oil prices, which have been rising over the past couple of months- he will see all these factors and then only draft his monetary policy.

Market men also say that this is a strong signal from the RBI that he would act. Now in what his action will be, that we would be able to tell only on January 29 when he announces the policy.

But definitely, if one sees the other statements that he was also making about inflation, you get to understand that for the first time, he was actually indicating there that high food and oil prices have a great impact on domestic inflation.

So that’s why market men are saying that his stance on inflation remains hawkish, though the inflation’s range that we are at, is well within the comfort zone of the RBI, which is between 3-3.5 per cent.

Also, market men are saying that this indicates may be a softening of the liquidity stance; may be the Governor will not remove liquidity when he announces monetary policy because there are also fears of global recession as we have seen today- a market meltdown in our domestic markets as well.

So cues from global markets are not very encouraging, domestic markets are not very encouraging. Therefore the Governor may not really remove a lot of liquidity from the system; definitely no rate cut.

Market men are saying that earlier, before he made these statements this afternoon, there was possibility of rate cut. But after these statements, market men are saying there is no possibility of a rate cut from the Reserve Bank Governor.