April 22, 2018

RBI seen keeping rates unchanged

06 December 2017, 12:18 | Kevin Scott

RBI seen keeping rates unchanged

By Wednesday afternoon once the policy is made public the debate will be more on its toneā€”is it more hawkish or less dovish

Consumer prices rose at a seven-month high of 3.6 percent in October and a Bloomberg Economics index shows core inflation - which strips out volatile food and fuel - is stubbornly above the central bank's 4 percent medium-term target. However, it kept economic growth forecast unchanged at 6.7 per cent. Further, global policy rate cycle and commodity prices along with consolidated fiscal position will keep the RBI cautious. Polls conducted by major news organisations say that the RBI will keep its policy rates unchanged, with retail inflation threatening to rise beyond 4 per cent.

At the fifth bi-monthly monetary policy session, the Monetary Policy Committee of the Reserve Bank of India made a decision to maintain the repo rate at 6.00 percent and the reverse repo rate at 5.75 percent.

It also expected the impact of the house rent allowance (HRA) to the central government employees to peak during December, following the 7th Pay Commission award.

Reverse repo rate is the rate of interest offered by the RBI when banks deposit their surplus funds with it for short periods.

The Indian economic growth recovered to 6.3 percent year-on-year in the third quarter from the previous quarter's 5.7 percent growth, slightly coming below the market projection of 6.4 percent.

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While there has been weakness in some components of the services sector such as real estate, its survey indicates that the services and infrastructure sectors are expecting an improvement in demand, financial conditions and the overall business situation in fourth quarter, RBI pointed out.

"I. vote for status quo, but only as long as inflation readings stay within the target of 4%".

Nevertheless, Modi's advisers said India's rates are too high.

"The recovery is a source of comfort to the RBI as it lowers pressure on them to take a growth-supportive stance", said Radhika Rao, an economist at DBS in Singapore.

Besides, recapitalisation of public sector banks may help improve credit flows further, it added.

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