The RBI Monetary Policy Committee (MPC) is all set to decide on the key interest rates amid fears of elevated oil prices and rising inflation in its third bi-monthly meet this year. We take a look at what experts have to say.
RBI Monetary Policy meet today: The RBI Monetary Policy Committee (MPC) is all set to decide on the key interest rates amid fears of elevated oil prices and rising inflation in its third bi-monthly meet this year. Notably, in June, the Reserve Bank of India hiked the key rate by 0.25 percent to 6.25 percent. Experts say that the recent GST rate cut along with factors such as globally rising crude oil prices could pose fiscal concerns.
“While the cuts in rates of the GST on various items may modestly subdue inflation, they would add to fiscal concerns. Moreover, the uptick in the core-CPI inflation in June 2018 and the risks associated with the trend of expenditure announcements by state governments, suggest that the MPC may opt for a pre-emptive rate hike in August 2018,” Naresh Takkar, Managing Director and Group CEO, ICRA, told The Indian Express.
Global research firm DBS expects a 25 bps hike accompanied by a neutral stance triggering a small uptick in the 10-year yields followed by consolidation in a 7.65-7.80 per cent range. “We will also be paying attention to the RBI’s views on liquidity today, but we are not holding our breath for an explicit guidance,” said DBS in its daily economic report. On similar lines, Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities said that a 25 bps repo rate is on the cards.
According to Rakshit, several factors will impact RBI’s decision including –headline inflation remains well above the 4% mark over the medium term; core inflation remains sticky and high along with risks of higher input prices being passed on over the next few quarters; announced MSP hikes and the risk of it percolating to food inflation (which also implies the RBI should revise its headline inflation marginally higher for 2HFY19); growth remains on a stronger footing implying that the output gap is fast closing in and can lead to inflationary pressures in the medium term and the concerns surrounding the depreciating rupee. “Even as we call for a rate hike, the RBI may pause mainly to wait-and-watch if MSP hikes start to percolate to food prices and how the inflationary expectations have evolved over the last quarter,” he added.