A recent research note issued by Macquarie Securities has clarified that the short lending rate by Reserve Bank of India (RBI) will be kept unchanged at 9.0% at the next policy review on 24th October. 

Earlier, Macquarie had forecast an increase of a quarter percentage point in the repo rate to 9.25%. However it had said that a revision in the forecast has been done following the global financial problems. 

On Monday, Rajeev Malik, a Macquarie economist, informed through a note, “The key reason for our revision is the backdrop of the ongoing global financial stress that will likely prompt the RBI (Reserve Bank of India) to maintain the status quo on rates. Governer D. Subbarao will probably signal a shift to neutral at the October policy review.” 

RBI has been expected by Macquarie to ease the monetary policy from April 2009. Macquarie also hopes that RBI will cut policy rates and the cash reserve ratio for banks by around 200 basic points. 

Malik also said, “An earlier easing in the January-March quarter cannot be ruled out, owing partly to the timing of the next general election and/or better-than-expected inflation data.”

During the months of June and July, RBI raised the repo rate three times by 1.25 basic points to a seven year high of 9%. The bank’s reserve requirements have also been tightened by RBI in order to moderate double-digit inflation. 

According to a latest reading, inflation in early September was at 12.14%. Mailk informed through the note, “Inflation is expected to be in the high single-digit by end-March 2009. Consequently, the RBI will opportunistically prefer to keep the policy unchanged for now rather than tighten it further to bring about a faster decline in the inflation rate.”