Rate cut is off the table, Urjit Patel had said; here’s what may happen in December RBI policy meet

By: |
Updated: November 28, 2018 5:13 PM

RBI governor Urjit Patel had said that the central bank's mandate was only inflation targeting and that change in stance to calibrated tightening meant that rate cut was off the table. What will happen in December?

RBI governor Urjit Patel had said that the central bank's mandate was only inflation targeting and that change in stance to calibrated tightening meant that rate cut was off the table.RBI governor Urjit Patel had said that the central bank’s mandate was only inflation targeting and that change in stance to calibrated tightening meant that rate cut was off the table. (Image: PTI)

In October, when crude oil prices were surging and the rupee was falling, the market had anticipated a rate hike by the Reserve Bank of India (RBI). However, the central bank surprised the market by keeping the maintaining status quo on key repo rate, while changing the stance from ‘neutral’ to ‘calibrated tightening’.

Explaining the rationale behind the unanticipated move, RBI governor Urjit Patel had said that the central bank’s mandate was only inflation targeting and that change in stance to calibrated tightening meant that rate cut was off the table.

The inflation remained overwhelmingly lower than the RBI’s target of 4% in the month of October. Retail inflation or the CPI inflation, which the central bank targets, was just 3.31% in October at 13-month-low.

Given the circumstances, rate cut being off the table and inflation easing, the only option is another status quo. According to a report by Kotak Economy, the RBI is: 1) unlikely to change the repo rate; 2) going keep CRR unchanged; 3) likely maintain the policy stance at ‘calibrated tightening’.

The RBI Monetary Policy Committee, in its last policy, had estimated inflation at 3.9-4.5% in second half of the financial year 2018-19. “We estimate inflation at 2.9-4.3% in the period,” it said.

“The softer-than-expected inflation prints are on the back of benign food inflation, especially as most Kharif crop prices remain well below the MSP prices. While softer retail fuel prices will push core inflation lower, there will be a significant divergence from headline inflation mainly on the back of higher prices of education and health,” the report said.

The MPC will maintain its stance, possibly until core inflation reduces to around 4-4.5% on a sustained basis, Kotak Economy projected.

Do you know What is India expected to grow 10 pc during current fiscal: NCAER Director General Poonam Gupt,FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Strive to place India among top 2 digital economy globally: Mos IT
2Nirmala Sitharaman: No proposal to recognise Bitcoin as currency; govt doesn’t collect BTC data
3About Rs 52,000 cr GST compensation pending to states till Sept: FinMin