neutral stance. The MPC
noted that growth has picked up after five quarters of deceleration, though the high frequency numbers for October provide a mixed picture with PMI for services contracting. CPI inflation has broadly followed RBI’s projection and is likely to remain elevated for short time though there is some seasonal moderation of food prices expected as winter crop hits the market. Core inflation remained steady in October. The committee noted risks to inflation from continued higher oil prices, staggered implementation of HRA by States and possible fiscal slippage but was wary of the growth output gap dynamics.
The policy was on expected lines and less hawkish with the MPC noting some growth concerns, though they reiterated their stance of maintain inflation near the medium term target of 4%. Bond market are likely to get some support here. Government clarification on fiscal is likely to drive bond markets in the near term,” said Avnish Jain, Head – Fixed Income, Canara Robeco.
17:20 “On the expected line, the Reserve Bank of India has not made any change in the policy rate in its bi-monthly monetary policy review on Wednesday. It has not made any change in its growth projection either but there is a minor change in the projection of inflation in the second half of current fiscal year – it has been raised by 0.10 percentage point – from a range of 4.2-4.6 percent to 4.3-4.7 percent.
The stance of the monetary policy remains neutral. This means, data flow in future will determine Reserve Bank’s action. Against the backdrop of current macroeconomic scenario, the Reserve Bank’s decision to keep the rate on hold and neutral stance is par for the course,” Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank.
17:19 "This policy review is in the backdrop of rising inflation risk. The tone of the policy is noticeably cautious on prices and positive on growth. It is also to be noted that the future policy actions will largely depend on data facts. Augmenting the increase in Digital payments, the introduction of differentiated Merchant Discount Rate and a cap on the absolute amount of MDR for Debit card transactions is expected to increase acceptance of Debit card usage and will also bring down the cost of transactions for small merchants. Overall the outlook of MPC is supportive to the growth of the Economy," said Ashwani Kumar, Chairman & Managing Director, Dena Bank.
17:15 The following is the view of Dinabandhu Mohapatra, MD & CEO, Bank of India on the RBI's 5th monetary policy review for FY18:
Considering the upward trend in inflation, rising crude and a possible reversal of monetary accommodation by major Central Banks, the status quo in policy rates was widely anticipated. For the banking sector as a whole, credit growth is slightly higher than deposit growth, signaling an end to easy liquidity conditions. Taking a cue, some banks increased the rates on wholesale deposits. Both domestic and global growth is on a rising trend. However, higher growth overseas also carries the risks of upward movements in commodity prices, not really good news for a major oil importer like India.
Moreover, interest rate policy should also ensure that yield generating opportunities available to overseas funds are not wiped out significantly or else there is a risk of fund outflows and a steep INR depreciation. The $ 31 billion forward position built up by RBI may be seen as a cushion against such an eventuality…India is now at a juncture where on the real sector, Government is undertaking reform measures while the MPC ensures monetary stability through its rate setting policies.
17:13 “RBI maintained a status quo on rates. More importantly, RBI has held on to its growth forecast for the year at 6.7% (H1FY18 growth is 5.8%). RBI did increase the inflation forecast marginally by 10bps to average 4.5% in H2FY18 (4.4% earlier). On the liquidity front, RBI seems quite comfortable now and we do not expect any more OMO sales in the near future. We expect RBI to maintain a neutral stance over the next few quarters even as global central banks raise rates (as was the case with Bank of Korea last week),” said Sameer Narang, Chief Economist, Bank of Baroda.
17:12 “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% as against our expectation of 6.5%. Given that MPC members are fixated with anchoring 4% 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,” said Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank.
16:51 “The status quo on policy rates by RBI was in line with consensus and our expectations. MPC maintained the growth projections at 6.7% and marginally revised up its H2 inflation projection to 4.30-4.7% from 4.2%-4.6%. MPC has maintained the neutral stance given negative output gaps in the economy.
The policy guidance is in line with market expectations reflected in spike in 10y yields beyond 7% mark. RBI believes that the higher household inflation expectations and possibility of pass through of higher input costs may push inflation trajectory in future,” said Kunal Shah, CFA, Fund Manager - Debt, Kotak Mahindra Life Insurance.
16:44 Giving her views on the RBI monetary policy, Radhika Rao, India Economist, DBS Bank, said:
"Markets witnessed a mixed reaction, with bond markets largely steady having already factored in much of the bearish factors impacting the inflation outlook. The rupee gained modestly whilst equities slipped as any remaining expectations of rate cuts were squashed by the small lift in RBI’s inflation forecasts.
The guidance was cautious on the near-term inflation outlook, owing to higher oil prices, housing rent allowance increases, rising input prices, fiscal slippage risks and core pressures. However, this was counter-balanced by a negative output gap and the cuts in GST rates which are expected to partly ease price pressures. While the FY18 GVA estimate was maintained and growth has bottomed-out in 2Q, a downward revision remains on the cards. Back on inflation, we expect the headline to settle within a broad 4-5% range, with base effects tempering the headline prints intermittently. While this closes the door for rate cuts, a clear bias towards rate hikes will require faster inflation to be accompanied by a strong turnaround in growth. On this account, we see range-bound inflation whilst growth returns gradually, providing the central bank with the comfort to remain on-hold during this phase, not rushing to tighten policy. A modest fiscal slippage is expected but not a deviation from the consolidation path. Oil prices remain the most uncertain part of the price outlook."
16:33 Giving her view on RBI's monetary policy, Bekxy Kuriakose, Head – Fixed Income, Principal Pnb Asset Management Company, said:
As was widely expected RBI kept key rates unchanged (5-1) and continued to sound caution on inflation, raising their forecast marginally. Their stance remains expectedly neutral. They seem to sound positive on growth highlighting recent increased issuance and availability of equity capital to corporates and SMEs which should get spent on new projects. RBI acknowledged drain of banking system liquidity and they feel that by first quarter of calendar year 2018, banking system may reach neutral conditions. However the fact that overnight call rates remain at or below the repo rate shows liquidity conditions continue to remain comfortable. On Bank recap bonds, the only clarity that has emerged is that it would be front loaded and differentiated based on financial performance of the PSU Banks. The details are expected to be released in few days.
Overall we feel the policy is on expected lines and current gilt yields factored in the same. We expect market to now take cues on evolving fiscal situation, bank recap bond details and global bond yields.”
16:26 "Fiscal slippage, global financial instability and firming inflation expectations are seen as key risks, which could be offset by seasonal moderation in prices of fruits & vegetables. Risks in GVA forecasts emerge from increases in oil prices and shortfall in agricultural production, which could be offset by revival in credit demand.
We expect inflation to rise to 4.3% in November 2017 and move further up to touch 5% by March 2018, primarily on account of low base. Core inflation, however, is likely to cap at ~4.7%, up from 4.4% in the past two months. We expect the RBI to look through the base effect and thus, don’t expect any rate action in remaining FY18," said Nikhil Gupta, Economist, Motilal Oswal Financial Services.
16:20 “The RBI’s decision to maintain status quo was well within the industry expectation given the current economic conditions. We believe that the RBI has taken a more cautious approach keeping in mind the prevailing inflation pressure and rising food and fuel prices. This approach is more of tightening the systemic liquidity until the inflation rate normalizes. It is commendable to see improvement in the ease of doing business ranking which will help to sustain foreign direct investment in the economy,” George Alexander, MD Muthoot Finance Ltd, said after the policy statement.
15:46 Going forward, inflation will be influenced by several factors including reversal of moderation in inflation, HRA or house rent allowances (from the 6th Pay Commission) and rise in international crude oil prices. Also the risk of upward trajectory of inflation may continue in the near term, the central bank said.
15:32 Use of POS (point of sale) has increased significantly. It's time that we give a further push the use Of POS machines, said RBI deputy governor.
15:24 Credit flow is already better than last October, said RBI governor Urjit Patel said while addressing press after the policy announcement. He added that as the economy picks up, demand for credit will go up.
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15:16 After the Reserve Bank of India’s Monetary Policy Committee (MPC) decided to keep key interest rates unchanged, rate-sensitive stocks continued to trade lower.
Rate sensitives are usually the ones who are directly impacted by the central bank’s decision on key interest rates. Hence, automobiles, banks, and real estate are the major ones to be kept an eye on.
Read full story here.
15:09 RBI says Q2 growth was lower than that projected in the October policy. Talking about recapitalisation of PSU banks, the central bank said the move may help improve credit flows further.
15:05 MPC has kept policy stance neutral because nothing has happened between October and now on macro economic front to warrant that, says governor.
Read full policy statement here.
15:00 Debit card transactions will get a boost as the Reserve Bank of India will put a limit on merchant discount rate (MDR) and create a framework for asset-light acceptance infrastructure.
A differentiated MDR for asset-light acceptance infrastructure and a cap on absolute amount of MDR per transaction will be prescribed, RBI said after its monetary policy announcement on Wednesday.
The revised MDR aims at achieving the twin objectives of increased usage of debit cards and ensuring sustainability of the business for the entities involved. The revised instructions for MDR on debit card transactions will be issued later on Wednesday.
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14:52 Liquidity conditions continue to normalise. We will consider open market operations if liquidity needs to be injected, says RBI deputy governor Viral Acharya
14:47 MPC took note of pressures from food and fuel prices; said committed to keeping headline inflation at 4 percent, says RBI governor. Farm loan waiver, partial roll back of duty on fuel, cut in GST rates on several items may result in fiscal slippage, RBI Governor Urjit Patel has warned.
14:45 RBI governor to address the press shortly
14:42 The MPC remains committed to keeping headline inflation close to 4 percent on a durable basis, the RBI statement said.
14:41 RBI says 5 out of 6 Monetary Policy Committee members favour no change in rates. RBI says MPC member Ravindra Dholakia voted for a 25 bps rate cut.
Find out the key takeaways from the policy.
14:37 The projection of real GVA (gross value added) growth for 2017-18 of the October resolution at 6.7 percent has been retained.
“On the whole, inflation is estimated in the range 4.3-4.7 per cent in Q3 and Q4 of this year, including the HRA effect of up to 35 basis points, with risks evenly balanced,” RBI said in its policy statement.
14:33 The Monetary Policy committee has left the key policy repo rate unchanged at 6 percent. Likewise, it has left the reverse repo rate at 5.75%. The cash reserve ratio too has been left unchanged at 4%.
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14:30 CNBC-TV18 poll shows bankers do not expect any change in RBI's neutral policy stance. While 90% bankers do not expect action on repor rate, 10% expect a 25 bps repo rate cut in FY18.
In terms of growth expectations, 50% bankers see FY18 GVA unchaged at 6.7%, while 20% bankers expect it to be revised below 6.7%.
14:28 The monetary policy due on Wednesday will in all probability be a no-action policy. The reasons are not far to seek: On October 7 when the monetary policy committee (MPC) met for its previous policy, the last Gross Domestic Product (GDP) number, that is for the first quarter of FY18, was 5.7 percent, the last CPI number, (for August) was 3.28 percent and crude prices were at USD 57.
Now, as the MPC meets again, GDP growth has inched higher to 6.3 percent for the second quarter, CPI has risen to 3.58 percent in October and crude prices have averaged USD 63 for the past month. Also in October, there appeared less chance of the government reneging on fiscal deficit than it does today. If the MPC didn’t find space to cut rates on October 7, it is unlikely to find reasons to slash rates on December 6.
Click here for full comment from CNBC-TV18's Latha Venkatesh
14:20 Since RBI’s last credit policy on October 4, the yield on the 10-year benchmark has moved in only one direction – up. It is widely expected that a combination of rising prices and slightly better growth will hold the RBI back from cutting rates.
But has growth made a decisive comeback? Is the RBI comfortable with the tight liquidity? Will it sound hawkish or dovish? These are the questions that that the market is seeking answers for in today's policy.
RBI may pause on rates, but can it overlook quality of growth?Read the full text here.