Monetary policy review: RBI maintains status quo

Posted by Daily Shipping Times on 08-02-2018        Tweet

MUMBAI: The Reserve Bank of India chose to maintain a status quo stance and retain its key interest rate, the repo rate, at 6 per cent. The Central Bank has been in this mode for its previous two meetings also, after it last cut rates at its August 2017 meeting.

The decision of the 6-member committee was by a majority of 5 to 1.

Dr Chetan Ghate, Dr. Pami Dua, Dr. Viral V. Acharya, Dr. Urjit R. Patel and Dr Ravindra Dholakia were all in favour of status quo while Dr Michael Patra was in favour of a 25 bps hike.

The Monetary policy committee’s (MPC) decision was in line with market consensus that there would be no change in rates, although the tone of the statement was expected to be hawkish.

Inflation estimates

The MPC expects GVA to be at 6.6 per cent, a tad bit lower than what was projected earlier while inflation projections for the fourth quarter is expected to be 5.1 per cent.

This is significantly higher than the 4.3- 4.7 per cent range that it forecast at its earlier meeting in December. Actual retail inflation had touched a 17 month high of 5.2 per cent in December, significantly higher than the RBI target of 4 per cent.

For the next year inflation projections have again inched up.

The RBI said that CPI inflation for 2018-19 is estimated in the range of 5.1- 5.6 per cent in the first half including diminishing statistical HRA impact of Central Government employees, and 4.5- 4.6 per cent in H2, with risks tilted to the upside. The projected moderation in inflation in the second half is on account of strong favourable base effects, including unwinding of the 7 th CPC’s HRA impact, and a softer food inflation forecast, given the assumption of normal monsoon and effective supply management by the Government, the statement said.

In the backdrop of the budget announcement last week market players saw the likelihood of higher inflation in the coming fiscal, given the promise of higher minimum support prices as well as the announcement of a universal health care scheme (not yet fully funded).