By not cutting interest rates, as was widely expected, the Reserve Bank of India hasn't only disappointed markets but has modestly harmed the inflationary outlook, says Robert Prior-Wandesforde, director of Asia Economics at Credit Suisse. The RBI stood pat on interest rates today, unpleasantly surprising markets who positioned for a cut of at least 25 bps in the key lending rate. "It's risky from a growth perspective," he says; "clearly, they don't want to take any risks at all at this stage and I would suggest it's a fairly backward-looking approach to monetary policy." Most people would argue that growth leads to inflation. A forward-looking approach would focus on growth more than on inflation. Today's rate decision must be RBI's way to "effectively put further pressure on the government, to keep the policy ball in the government's court to some extent," Prior-Wandesforde says. Still, monetary easing in the end-July can't be ruled out.
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RBI just crashed all hopes. However the rates will come down over the nex few months given the sluggish growth and lower credit offtake.
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