The monetary policy committee (MPC) decided to keep policy repo rate unchanged at 6 percent and reverse repo rate at 5.75 percent.
The Reserve Bank of India (RBI) on expected lines kept key policy rates unchanged at its fifth Bi-monthly monetary policy statement. The monetary policy committee (MPC) decided to keep policy repo rate unchanged at 6 percent and reverse repo rate at 5.75 percent.
The marginal standing facility (MSF) rate and the bank rate stays at 6.25 percent.
The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent while supporting growth, RBI said in a statement.
The October bi-monthly statement projected inflation to rise and range between 4.2-4.6 percent in the second half of this year, including the impact of an increase in house rent allowance (HRA) by the Centre, said the statement.
The headline inflation outcomes have evolved broadly in line with projections. Going forward, the inflation path will be influenced by several factors including moderation in inflation excluding food and fuel observed in Q1 of 2017-18, and the impact of HRA by the Central Government is expected to peak in December.
We have collated views from various experts on RBI policy statement:
Sajjid Z Chinoy, Chief India Economist at JP Morgan Chase told CNBC-TV18
There was no surprise from the tone of MPC committee. We have been saying for many quarters that inflation is on track exceed RBI forecast. We are also worried about core inflation going up in the last two months which signals risk on core inflation, fiscal risk has also risen.
You have to layout those upside inflation risk given the fact that there is some slack in the economy which the government pointed out. It was a non-event kind of policy and going forward the central bank will be on hold foreseeable future.
Govind Sankaranarayanan, Chief Operating Officer – Retail Business & Housing Finance, Tata Capital
The Indian economy’s revival - expressed through an increase in GDP growth rate and the first Moody’s rating upgrade in 14 years does not seem to have deterred the monetary policy committee from maintaining the status-quo for the second session in a row.
Global cues by central banks - which have been tightening their monetary stance coupled with more domestic issues related to commodity prices, market liquidity, hardening bond yields and more importantly rising inflation – which could rise to 4.5% from 3.58% in October 2017 have influenced the RBI’s recent decision to adopt a wait-and-watch stance. From an NBFC standpoint, we do not expect it to have a significant effect.
Sunil Srivastava, Director MD at SBI told CNBC-TV18
The inflation forecast is dazed and the core inflation being one of the key risks apart from fiscal slippages – so we don’t see cost of money reducing significantly going forward. But, with oil prices being where they are and we are seeing signs of incipient credit growth, I would say the RBI has been neutral to cautious in terms of stance which is the right stance to take.
Upasna Bhardwaj, Sr. Economist, Kotak Mahindra Bank
RBI’s policy was in line with expectations, maintaining a word of caution on the upside risks emanating from high commodity prices, global financial instability, HRA related increases, rising input costs and fiscal slippages.
RBI’s 2H inflation has been revised marginally higher by 10bps to 4.3-4.7% even as they retained the GVA forecast of 6.7 percent as against our expectation of 6.5 percent.
Given that MPC members are fixated with anchoring 4 percent inflation target and the upside risks emanating from higher oil prices, higher rural real wages, sticky core inflation and mean reversion of food prices, we find limited room for any further monetary accommodation this year.
Asutosh Kumar Mishra - Senior Research Analyst Reliance Securities
On expected line, the Reserve Bank of India (RBI) kept the benchmark repo rate unchanged at 6% and hiked the inflation trajectory to 4.3%-4.7% for 2HFY18. With the Union Budget on the anvil and while awaiting more data on the inflation trajectory, we expect RBI to maintain its current stance at least till the current fiscal year end.
Apart from the local factor development at international front also indicates that further monetary policy easing will be difficult in current fiscal year. International crude oil price has surged shapely over the last few months led by the production cuts by OPEC along with increasing political uncertainty in Saudi Arabia and other oil producing nations.
We expect higher fuel price will eventually get transmitted into inflation rates as well negatively impact fiscal deficit estimates of GOI. These all factors will weight against monetary policy easing going forward.
Arvind Chari, Head-Fixed Income & Alternatives, Quantum Advisors
The RBI continues to remain on hold and their confidence on the growth recovery is reflected in the market expectations of no further rate cuts.
We found this RBI statement to be bit more balanced than the one in October where they appeared unduly concerned on inflation. Although, they have increased the inflation projection but have also highlighted factors which can soften prices.We expect RBI to remain on a long pause thus current bond yields remain attractive but its trajectory is dependent on government fiscal deficit commitment.