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RBI monetary policy today: Here are the key expectations

The Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel is scheduled to announce its 6th bi-monthly monetary policy decision at 2:30pm on Wednesday. The outcome of the 6-member MPC meeting is being keenly awaited by stakeholders amidst a huge sell-off in the stock markets globally.

MSP, Monetary Policy Committee, RBI inflation estimates, FPI, RBI
Markets are keeping a close eye on a possible revision in the inflation estimates of the Reserve Bank of India (RBI) on Wednesday, when it is set to announce its sixth and the final bi-monthly monetary policy for 2017-18.

The Monetary Policy Committee (MPC)  headed by RBI Governor Urjit Patel  is scheduled to announce its 6th bi-monthly monetary policy decision at 2:30pm on Wednesday. The outcome of the 6-member MPC meeting is being keenly awaited by stakeholders amidst a huge sell-off in the stock markets globally. The 6-member committee will announce its decision amid presumptions that the key interest rates will maintain status quo in consideration of firming inflation.In its December review, the MPC had kept the benchmark interest rate unchanged on concerns of a possible price rise but had left the door ajar for a rate cut in future. Retail inflation crossed the RBI’s comfort level and rose to 5.21 percent in December on increase in prices of food items. The retail inflation, based on Consumer Price Index CPI), was 4.88 percent in November. In December 2015, it was 3.41 percent. Here are the key expectations:

Rates action

Bankers and experts are of the view that for the third time in a row, RBI may key repo-rate or short term lending rate unchanged as inflation trajectory is likely to remain upward at a time when crude oil prices in international market has started firming up and government plans to raise crop support price. Also, pick up in economic activity in the second half of the current financial year, ending March 31, will reduce pressure on RBI to go in for a rate cut to boost growth. Experts said that while the main concern for the central bank will be the rising inflation trajectory, the MPC will also factor in the Union Budget 2018-19 presented by Finance Minister Arun Jaitley to Parliament earlier this month.

Inflation

After the government presented the pre-budget Economic Survey to Parliament, Chief Economic Adviser Arvind Subramanian too had indicated that the scope for RBI to lower interest rate may be limited with growth picking up and inflation hardening.The retail inflation, based on Consumer Price Index CPI), was 4.88 percent in November. In December 2015, it was 3.41 percent. So, the central bank may adopt wait-and-watch policy once again.

 

Fiscal scenario

Shashank Mendiratta, an economist at ANZ, told Reuters that the fiscal stance for 2018-2019 “will add to the hawkish rhetoric on two counts – the budgetary decision to allow aggregate spending to rise at a faster pace than nominal GDP; and the decision to effect an increase in minimum support prices.”

Growth

RBI, in its last outing, projected FY18 growth rate at 6.7 percent. RBI could peg the growth estimate for 2018-19 at 7-7.5 percent. With most brokerages backing strong growth ahead and government focusing on recapitalisation of the public sector banks, credit flows should only improve going ahead.

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First published on: 07-02-2018 at 10:04 IST
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