After Q1 GDP went down to a three-year low in spite of rising shrill calls for a fiscal and monetary boost, the Reserve Bank is about to leave policy rates unchanged in the upcoming policy review in October. It is expecting a increase in retail inflation going ahead.
In August, it was observed that the retail inflation increased to a five-month high of 3.36 per cent, which was earlier 2.36 per cent in July. Since March 2017, it was noted that the inflation number of August was highest since, when it was recorded at 3.89 per cent.
In financial year 2018, retail inflation is expected to average 3.7 per cent, which is lower than the medium-term target of 4 per cent. There is a scope for further monetary easing, with the repo rate at present at 6 per cent.
The managing director of Icra said that he does not expect a rate cut in the upcoming policy review, as CPI inflation is expected to chart an upward trajectory over the coming months, and print between 4.5 and 5 per cent in March 2018. For October 3 and 4, the MPC meeting is scheduled for.
It is unlikely to be sufficient to meaningfully rekindle investment activity, while an interest rate cut would be welcomed by corporate.
The central PSU’s may raise extra budgetary resources through tax-free bonds, which could boost investment in high- multiplier sectors such as roads, railways, metro networks and affordable housing, without affecting the fiscal deficit.