Rupee will be the focus of RBI's monetary policy on July 30 instead of growth and inflation

Inflation is at a near-three-year low of 4.86% and economic expansion is crawling but sliding currency is more concerning
MUMBAI: For the first time since the 1997 East Asian crisis, the Reserve Bank governor's prognosis for the Indian rupee will take centre stage at the quarterly monetarypolicy on July 30, instead of interest rates.

In what could be the last quarterly monetary policy unveiled by Duvvuri Subbarao, the bureaucrat-economist will explain his recent actions that have left most investors flummoxed.

When inflation is at a near-three-year low of 4.86% and economic expansion is crawling, it would have been a no-brainer to forecast an interest rate cut by the monetary policy maker. But hardly anyone is doing so, thanks to the sliding currency.

All the 15 economists polled by ET were unanimous that repo rate - the rate at which the central bank lends to banks - and cash reserve requirement - the portion of deposits that needs to be kept with RBI - will remain at 7.25% and 4%, respectively. So will the statutory liquidity ratio - the portion of deposits to be held in government bonds - at 23%.

RBI's reaction to the sliding rupee, which touched life lows this month, is drawing comparison to former governor Bimal Jalan's shock therapy of steep interest rate and reserve ratio increases in January 1998, reversing an easing cycle. Jalan's measures lasted about three months.

Too many imponderables 

Investors are looking for guidance from Subbarao on when his tightening by stealth will end.

But an answer may be elusive given that there are too many imponderables. There are conflicting signals from the ruling class, which is neither for higher interest rate to lure US dollars nor for sovereign bond sale to show its commitment to defending the rupee.