'For rest of the year, one can expect 25-50 bps cut'

The Reserve Bank of India kept interest rates on hold at 7.50 per cent on Tuesday, waiting for more clarity on inflation after heavy rains raised uncertainty about food prices and seeking to grant banks more time to reflect its previous rate cuts.  

Most of the 40 economists surveyed by Reuters had expected the Reserve Bank of India to keep the key lending repo rate on hold.  

Commentary

Abheek Barua, chief economist, HDFC Bank, New Delhi  

"I am a little disappointed as I was expecting a rate cut. But the way policy is conducted these days all the rhetorical language doesn't mean much and it's entirely data driven.

It's quite possible that we get a nice retail inflation print and the RBI would move.

One critical thing that RBI has said is to wait for the impact of its front-loaded rate cuts on bank lending rates.

I think that will happen very soon and if data is supportive of a rate cut we might see one between policies."

Radhika Rao, economis, DBS, Singapore  

"Benchmark rates were left unchanged on concerns over near-term sticky inflation. Calls to lower the cash reserve ratio to aid policy transmission were meanwhile left unanswered, as we expected."  

"While a lower CRR might have eased liquidity conditions without straining banks' interest margins, its uncertain whether that would have been enough to trigger cuts in base lending rate cuts or stoked credit growth.

As far as policy transmission is impaired due to weak credit demand and concern over banks' asset quality, infusion of additional liquidity might not do the trick.

Marginal impact on the base rate during the 2012-13 rate cutting cycle also does not set an encouraging precedent."

Background  

- Growth in India's pivotal services industry lost some momentum in March as input prices rose at the fastest pace in nearly a year, a business survey showed.  

- RBI chief said on Thursday the country's push to build infrastructure should not come at the expense of financial stability, adding banks already had too much exposure to the sector.  

- Indian manufacturing growth accelerated in March after a jump in demand even though firms pushed up prices at the fastest rate in four months, a business survey showed.  

- India's April-Feb fiscal deficit at 6.03 trillion rupees - Govt.  

- The RBI relaxed rules for foreign investors in exchange-traded currency derivatives by increasing the trading limits allowed without an underlying exposure for the USD/INR pair to $15 million per exchange from $10 million earlier.  

- India's wholesale prices declined at a much faster-than-expected pace of 2.06 per cent on year in February, their fourth straight monthly fall, on the back of plunging global oil prices, government data showed.  

- India's consumer inflation edged up in February for the third straight month, mainly driven by food prices, underscoring the risk of a rebound in inflationary pressures from rising commodity prices.  

- India's industrial output growth accelerated to 2.6 per cent in January, mainly driven by growth in the capital goods sector, government data showed.

Photograph: PTI