Rate cut hopes dim as RBI warns of inflation pressure

The Reserve Bank on Monday hinted at holding on to its rates in the quarterly monetary policy review on Tuesday, saying there are increased risks on inflation scenarioand lack of action on the fiscal front.

“Monetary policy space needs to be created through fiscal adjustment and structural measures to improve supply conditions …” the Reserve Bank said in its report on Macroeconomic and Monetary Developments, released on the eve of the policy announcement.

The near-term outlook on inflation is marked by a slew of upside risks despite significant slowdown in growth, the RBI said, adding that suppressed inflation, poor supply responses and a weaker monsoon are risks to the price situation.

“Persistence of inflation, even as growth is slowing has emerged as major challenge for monetary policy,” it said.

For the month of June, the headline or WPI inflation stood at 7.25 per cent while the consumer price index was at double-digit level of 10.02 per cent.

The pro-growth lobby, which is alarmed over quarterly growth slipping to a nine-year low of 5.3 per cent for the March quarter, wants the RBI to slash interest rate to prop-up growth.

In its last review of June 16 , the RBI had refrained to cut policy rate despite hard lobbying by industry to ease policy rate.

RBI also said that the growth in the current fiscal is likely to be below the reduced potential of 7.5 per cent because of “global headwinds, inflation and policy uncertainty”.

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