0727 GMT [Dow Jones] The Reserve Bank of India's decision to not cut
interest rates (as was widely expected and despite the growing clamor
for a cut in recent days) is reasonable at the moment as upside risks
to inflation linger, says Sajjid Chinoy, India economist for J.P.
Morgan. The RBI said there are several factors responsible for a
slowdown in growth, with the role of interest rates being relatively
small. "Interest rates are not at the heart of the problem," Chinoy
says. "So, cutting interest rates when retail inflation is above 10%
risks stoking more inflation and not solving the fundamental
investment problem," he adds. Besides, the INR's nearly 20%
depreciation against the USD over the past 12 months significantly
eases monetary policy. A 10% weakening in the INR/USD over the past
three months is equivalent to a 100-bp cut in rates, Chinoy says. At
the moment, it may be too early to forecast RBI's action at the end of
July, which will depend on the emerging growth-inflation dynamics.
(khushita.vasant@dowjones.com)
Contact us in Singapore. 65 64154 140; MarketTalk@dowjones.com
(END) Dow Jones Newswires
June 18, 2012 03:27 ET (07:27 GMT)
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