Custom Search

Saturday, January 25, 2014

RBI unlikely to tinker with rates in Jan 28 policy review: BNP Paribas

BNP Paribas expects the Reserve Bank of India to keep policy rates unchanged in the January 28 policy review meeting.

The RBI is likely to pause for the second time in a row, thanks to inflation based on both the wholesale price index (WPI) and the consumer price index (CPI) softening in December.

But there is a strong chance of the central bank going in for 25 basis point hike in each of the subsequent two meetings, said Richard Iley, Chief Asia economist, BNP Paribas.

BNP Paribas expects interest rates to remain elevated for the next two quarters. The interest rates are expected to come down by the end of 2014.

“Inflation is worrisome. CPI is extremely high. Regaining control over inflation is going to be tough for RBI Governor Rajan,” Iley told Business Line.

Richard also felt that the RBI will have to factor in the aspect of a limbo situation on the fiscal policy front given the impending general elections.

India’s inflation remains uncomfortably sticky at about 8 per cent, despite the economy’s lacklustre growth.

Survey evidence suggests that inflation expectations — both of urban households and professional forecasters — remain on an upward arc, risking a continued ratcheting up of average inflation performance, noted a recent BNP Paribas report on Key Macro Themes for 2014 in Asia ex Japan.

GDP growth

BNP Paribas sees Indian economy growing at a dismal 4.3 per cent in 2013-14. But it has projected a stronger GDP growth of 5.1 per cent in 2014-15.

However, a return to 7-8 per cent GDP growth looks a “pipedream” for the foreseeable future.

“Achieving 7-8 per cent GDP growth is long way. We are sub 5 per cent in the latest quarter. It’s very hard to generate additional 2 percentage points growth. The concern is poor performance of the industrial sector,” Iley said.

There has been stagnation in industrial output in the best part of the last four years, he said, adding that the key is going to be recovery of the corporate sector. “It’s hard to see animal spirits returning. The role of dysfunctional politics has been unhelpful.”

The outcome of general elections in May 2014 would have a significant impact on sentiments. The positive outcome of a stable Government would pave the way for structural reforms and better economic growth, BNP Paribas said.

Source: Thehindubusinessline


Post a Comment

Popular Posts

Desi Google | A2Z Famous Quotes | What's Cooking America | Joke Site