Investing.com -- Barclays’ Chief India Economist Rahul Bajoria, in a note, said that the Reserve Bank of India (RBI) is caught in a bind. Twin pressures of weak growth on one side and surging inflation on the other will put pressure on the RBI which will probably increase the key repo rate only in the first quarter of FY23.
The RBI made deep rate cuts to ensure liquidity in the system but that has inflation rising above the 5% rate it is comfortable with. The latest number came at 6.3% for May. “Given this backdrop, we expect the central bank to maintain its accommodative stance, and to continue to rely on the government’s supply-side measures to reign in price pressures, while at the same time confirming its commitment to anchoring medium-term inflation expectations,” said Bajoria.
In a report on June 29, the RBI had said that credit growth to the industry has been in the negative for all four quarters of FY21. “Working capital loans in the form of cash credit, overdraft and demand loans, which accounted for a third of total credit, contracted during 2020-21,” said the RBI. Credit growth to the private corporate sector fell for the sixth consecutive quarter for Q4 FY21. The total share in credit was 28.3%.
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