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RBI may hold rate cut till elections

RBI may hold rate cut till elections

Clamour for a policy rate cut by Reserve Bank of India (RBI) seems to have dimmed substantially as chances for such a move look remote in the post-Budget scenario. The Interim Budget 2019-20 is inflationary in nature and the rise in bond yields has put to rest all speculations over a possible rate cut. The central bank may change its monetary stance from calibrated tightening to neutral in its upcoming bi-monthly monetary policy report expected on February 7, but it is unlikely to slash interest rates, a demand of India Inc.

As per the Interim Budget, unveiled by Piyush Goyal, the fiscal deficit has slipped for the fourth consecutive year, with the target for 2018-19 slipping 10 basis points to 3.4%. The fiscal deficit target for next fiscal has been kept at 3.4%, too. The Budget proposals, which include an assured income scheme for farmers and income-tax rebate for the middle class, will put more money in the hands of consumers, leading to fanning inflationary trends.

The government's net market borrowing for 2019-20 is budgeted to grow at 11.9%. A larger market borrowing will surely result in a higher bond yield. Many experts believe that the revenue targets, especially on GST collections and disinvestment, are optimistic.

It is likely that the RBI may wait until the general elections get over and seek more clarity before taking a call.

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