(MENAFN- KNN India) Reserve Bank of India (RBI) may not reduce the benchmark interest rates on Tuesday when it reviews its monetary policy. As many as 10 of 12 leading bankers and market players polled by a business daily expect the central bank to maintain the status quo during its annual policy meeting. Most, however, say a rate cut could come in RBI's June policy.
The recent unseasonal rains might exert pressure on food prices and geopolitical tensions could lead to an increase in global crude oil prices. The central bank will also be concerned about foreign fund outflows, as speculation has begun to build up that the US Federal Reserve might raise the interest rate later this year.
The rate of consumer price index (CPI) -based inflation - RBI's main yardstick for measuring price rise - fell to a record low in November. But it has risen gradually since, and was 5.37 per cent in February. According to an agreement between the central bank and the government, the former's target is to bring the inflation rate to below six per cent by January 2016.
The crucial issue is when banks start reducing lending rates. Though banks have not yet passed on the benefit of the 50-basis-point cut in repo rate by RBI so far, they might start lowering their base rate from April.
However, there are a few challenges that banks have to address before taking such a call. Some bankers say the cost of deposits have not come down significantly; that is seen as crucial for cutting lending rates. Customers are opting for locking their excess funds in longer term fixed deposits. As a result, the bank has not seen any significant reduction in deposit rate, despite reducing it in some categories in the past six months.
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