RBI may leave rates on hold after higher prices, say experts

By: |
New Delhi | November 14, 2017 12:38 PM

Stronger food and fuel inflation pushed up headline CPI inflation to a 7-month high in October and accordingly, the Reserve Bank is expected to stay on hold in its upcoming policy review meet next month, a majority of experts believe.

reserve bank of india, rbi, rbi rates, rbi economy, economy, economic growth, economic stability, india economyThe Reserve Bank of India, in its policy review meet on October 4, kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 per cent for the current fiscal. (Reuters)

Stronger food and fuel inflation pushed up headline CPI inflation to a 7-month high in October and accordingly, the Reserve Bank is expected to stay on hold in its upcoming policy review meet next month, a majority of experts believe. Costlier food items, particularly vegetables, drove retail inflation in October to a 7-month high of 3.58 per cent. Retail inflation, a key input for RBI in setting the key interest rate, has been rising consistently since June amid a slowdown in factory output measured by the Index of Industrial Production (IIP). Apart from retail inflation, the other key data point for RBI’s action is the GDP growth print due later this month. “Given the rise in headline inflation and steady core inflation, we do not expect the RBI to ease further in the December monetary policy meeting,” Morgan Stanley said in a research note. Japanese financial services major Nomura also believes that HRA and GST effects are to be blamed for higher underlying momentum in inflation and accordingly, the Reserve Bank is expected to stay on hold through 2018. “Given higher oil prices, likely above-4 per cent inflation in coming quarters and risks of a fiscal slippage, we expect the RBI to stay on hold through 2018, including at the December 6 policy meeting,” Nomura said in a research note.

BofA Merrill Lynch, however, believes a December rate by by the RBI is still on the table. “On our part, we continue to expect the RBI MPC (monetary policy committee) to cut (rate) on December 6 to signal a bank lending rate cut, before the ‘busy’ October-March industrial season intensifies, to support recovery,” BofA Merrill Lynch said in a research note. It further noted that the time is ripe for banks to cut lending rates with sufficient liquidity emanating from RBI forex intervention as well as bank recapitalisation.

The Reserve Bank of India, in its policy review meet on October 4, kept benchmark interest rate unchanged on fears of rising inflation while lowering growth forecast to 6.7 per cent for the current fiscal.

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
1IMF Chief Economist Gita Gopinath to leave job and return to Harvard University
2Meet festive demand, lend liberally, PSBs told
3Interview: Sudhir Kapadia, EY India Tax Leader – ‘OECD tax deal directionally good for India; being a large market, the country stands to gain’