S&P Expects RBI To Cut Rates On Falling Inflation

Falling inflation and declining global crude oil prices have created space for the Reserve Bank of India (RBI) to cut interest rates, S&P Global Ratings said on Tuesday.

The RBI is scheduled to announce its sixth bi-monthly policy review for the fiscal on February 7. It would be the first Monetary Policy Committee meeting under RBI Governor Shaktikanta Das, who took charge in December 2018 following sudden exit of Urjit Patel.

S&P Global Ratings Economist Vishrut Rana said inflation remains under control and near the low end of the target band, following strong food output, and easing crude oil prices, that have fallen about 20 per cent from their October highs.

“These two factors mean that the RBI has some policy space to move its interest rate settings downward at least in the near term,” Rana said.

In its December monetary policy review, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise.

Continued decline in food and fuel prices pulled down retail inflation to an 18-month low of 2.19 per cent and WPI inflation to a 8-month low of 3.80 per cent in December 2018.

The Government has mandated the RBI to contain retail (CPI) inflation at 4 per cent (+/- 2 per cent).

Brent crude which had breached $80 a barrel mark is now hovering around $63 a barrel.