MUMBAI 28/NOV/2014: Can OPEC succeed where two finance ministers and years of corporate lobbying could not persuade RBI to cut rates? The Organisation of Petroleum Exporting Countries decided not to impose any limits on the amount of crude being pumped despite a 38% crash in prices as it sought to combat shale oil, sending prices sliding even further. However, the consensus forecast is still that RBI Governor Raghuram Rajan will hold the repo rate at 8% when he announces the monetary policy on Tuesday. But the consensus doesn\'t necessarily have to be correct, especially in a rapidly evolving situation. Forget about the CPI reading in October, or even the second-quarter GDP growth number. That\'s not what will determine whether an interest rate cut is around the corner. Instead, it\'s the inflation forecast for early 2016 by a group of economists in executive director Michael Patra\'s team. So these are the odds to be watched. What are the chances of RBI economists forecasting 6% retail inflation by January 2016 and easing after that? Pretty high. This will be in contrast with the forecast of 7% by March 2016 made on September 30 but based on the assumption that crude will be at $100 a barrel. Six of the seven assumptions of the RBI argue for a lower inflation forecast. Only the rupee has bucked the trend it\'s depreciated below the assumed 60 to the dollar.
\"If we were to compare the RBI\'s inflation projection chart and the actual inflation trend, it would indicate that the current inflation is already 1.5 per centage point lower than the RBI\'s projection,\'\' said Morgan Stanley\'s Chetan Ahya. \"After 1Q 2015, we expect CPI inflation to decelerate to 6% by April 2015 on a sustainable basis,\" much ahead of RBI\'s January 2016 target. To be sure, at the heart of the debate is not whether CPI-measured inflation has fallen below the January 2016 target of 6%, but whether it will remain so beyond that date and move toward 4% after that, in line with the glide path indicated by the Urjit Patel committee. With the central bank\'s model unlikely to throw up something dramatically different from what private economists are forecasting, how would the man who frowns at any comparison with celebrated inflation warrior Paul Volcker react?
When his target of 8% for 2015 looked achievable, Rajan said he wasn\'t in the mood to party since his mind is on the 6% target for 2016. With even the 6% looking achievable, assuming prices do not reverse quickly, what will Rajan do? In fact, he indicated in August what his course of action could be. \"If early next year, given all that has happened, given government actions, if we think inflation will hit 6% before 2016, and stay that way, then we have room to cut rates even if at this point itself inflation has come down but is still above 6%,\" Rajan had said. \"It is not that we have to touch 6% to cut interest rates but have to project 6% to cut rates.\"