I was going through many articles written by the industry experts and editors stating the need of rate cut by RBI governor. This was supported inflation dropping as low as -2.65 %. The Government had the privilege to enjoy the negative inflation for the span of last 6 months but the trend seemed to be changing in the coming quarters. Looking at the market scenario I found that there is no need for the rate cut. The reasons that would support my view point
- Increase in the petrol and diesel prices which would inflate the price of the commodities.
The crude prices in the international market has reached high in 2015 levels, due to which the Government of India has hiked the prices of petrol and diesel twice in the span of 15 days which has the direct impact on every industry.
- Weather conditions seemed uncertain across the agricultural belt of the country which has badly affected the primary market.
The weather seems to be unpredictable over the last 4 months. Uncertain rain in the regions of Uttar Pradesh has affected the yield of the crops and the trend seems to be continued in other parts of the country.
- Risk of downgrade
The current Indian scenario seemed to be not in par with the expectation of the Government, so there can be possibility of downgrade by the rating agencies which would further add burden to the growth trajectory of the country which would further add to the outflow of cash by FII from the economy.
The best part that could be recommended is to wait for the next quarter and look at the inflation numbers for the coming couple of months and make a decision for the rate cut hike or deduction. RBI has done exceptionally well in terms of maintaining the inflation rate below par and I would hope whatever the decision that would be taken would be beneficial for the monetary condition of the economy.
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