3 Reasons for Rate Cut Today - RBI Credit Policy

• Growth
• Inflation
• Current account deficit

Growth:

The growth picture is pretty dismal. If we did 5.3% in the previous quarter we are likely to do no better in the current quarter. The dangers to growth come even from the global side, which looks pretty bleak now.

Inflation:

The consumer price inflation remains very sticky at double digits. It is not likely to go down because monsoon is questionable at the current juncture. Globally, the harvest is bad and a lot of economies worldwide are stimulating growth through cutting interest rates. Therefore, that could push up commodity prices.

Current account deficit:

The third major factor the report points out is the current account deficit. At the moment, we can't afford 4.2% current account deficit of last year although crude oil prices are falling, service and software exports have fallen.

Conclusion:

The conclusion one can draw from all this looks like given the inflation expectation and the current account deficit dangers the RBI is unlikely to stimulate demand by cutting interest rate at this juncture.