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RBI rate cut hopes rise after Coal India share sale

With inflation under control and hopes of the government reaching its divestment target, many bankers believe that macroeconomic indicators are conducive for a further rate cut of 0.25 per cent by Reserve Bank of India on Tuesday.

The improving fiscal situation, in the wake of a record Rs 22,577 crore garnered from Coal India stake sale, and weakness in manufacturing sector could nudge the RBI to lower rates, experts said. However, some bankers said the RBI Governor Raghuram Rajan may go for a status quo and would like to wait for cues from the Budget presentation on February 28 before undertaking any rate cut.

The RBI, which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, will undertake monetary policy review, 2014-15 on Tuesday.

According to bankers and economists, there is room for further rate cut by RBI as retail and wholesale inflation rates have remained benign.

The concerns on fiscal deficit front have also eased, especially after the government last week garnered a record Rs 22,577 crore through disinvestment of 10 per cent stake in Coal India Ltd.

While lowering the policy repo rate to 7.75 per cent from 8 per cent, the RBI had also said on January 15 that further rate cuts would depend on inflationary expectations and improvement in the fiscal situation.

Oriental Bank of Commerce's chief Animesh Chauhan said most macroeconomic indicators favour a rate cut and he hopes that the RBI Governor would consider a rate cut on February 3 by 25 basis points.

PSU banking behemoth SBI also said in a research report that RBI may go for a "token cut" in interest rates in its upcoming policy review.

Last month, Dr Rajan had said that the further easing of rates would depend on "data that confirm continuing disinflationary pressures".

"Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure," Dr Rajan had said.

While the retail inflation slipped to 5 per cent in December, the Wholesale Price Index (WPI) inflation remained near zero level (0.1 per cent).

Bank of Maharashtra chairman and managing director Sushil Muhnot however said, "My expectation is that the RBI may go for status quo as no new data have come post January 15. RBI Governor would like to wait till Budget before taking any action on rate front."

The government's fiscal situation is expected to improve further with more disinvestments. So far, it has realised over Rs 24,000 crore with just two disinvestment share sales, including SAIL's Rs 1,719 crore late last year. It targets to raise a total of Rs 43,425 crore from disinvestment in the current fiscal, ending next month.

Source: NDTV Profit