RBI may give good news to rate cut

Arun Jaitley today pitched for easier monetary policy, arguing that high interest rates can make the economy sluggish.Reserve Bank will hold its first bi-monthly monetary policy review for 2016-17 tomorrow.The finance minister also stressed that the debate on crucial economic issues, like interest rates, should move in the right direction in India, which is a "large and noisy democracy". ''There are a number of challenges in a large and noisy democracy and the most important for institutions like government and industry is to make sure that the debate on issues moves in the right direction'' ,said Arun Jaitley,Finance Minister. The outcome of the Reserve Bank of India's ( RBI) monetary policy will determine the direction of the markets in the days ahead. As Dalal Street forecasts a 25-bps interest rate cut by the central bank on Tuesday, markets could decline if the easing is just in line with expectations or below. More importantly, investors will watch the commentary to gain insights into future rate cuts and liquidity. Once the action around the monetary policy subsides, investors will shift focus to fourth quarter corporate results Benchmark indices gained 6-7% in March partly on expectations of a rate cut after the government maintained a stiff fiscal deficit target in the Budget. A rate cut of 25 bps has already been discounted. Anything above that will surprise and move markets. The government has stuck to fiscal deficit consolidation path, pegging the deficit for the current financial year at 3.5 per cent of GDP. In 2015-16, the fiscal deficit will remain below the budgeted targeted of 3.9 per cent. As far as inflation is concerned, while WPI has been in negative zone for past 16 months, CPI is hovering in the range of 5-6 per cent.

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