RBI Monetary Policy: The Reserve Bank of India on Friday kept the repo rate unchanged at 6.5 percent, surprising the market, which had widely expected a rate hike of 25 basis points. Nevertheless, the central bank changed the stance from ‘Neutral’ to ‘Calibrated Tightening’. This meeting was held against the backdrop of the sharp depreciation in the rupee, rising crude oil prices, intense pressure on current account deficit (CAD), crisis in NBFC sector and other liquidity issues.
Rate cut: Ruling out further rate cuts, RBI governor Urjit Patel today said that “calibrated tightening” means a rate cut is off the table. On being asked about the next rate cut, RBI governor said that MPC is not bound to hike rates in its every meeting. Deputy governor Acharya said the system liquidity remained in surplus mode till March 2018 and has largely remained neutral in the first half of the year.
Rupee: Unfazed by continuous fall in rupee versus US dollar, RBI Governor said the rupee fall is moderate in comparison to emerging markets peers. There is no target or band around any particular level of the exchange rate which is determined by the market forces of demand and supply, he said.
Oil: Amidst supply side disruptions, central bank sees headwinds from oil price rise, said RBI governor. The MPC headed by RBI Governor Urjit Patel said that the recent excise duty cut by the government on petrol and diesel will help contain inflation. The excise cut in petrol and diesel will moderate retail inflation, the policy statement said. The rise in oil prices may have a bearing on disposable incomes and dent profit margins of corporates, it added.
Inflation: Outlook for inflation is expected to remain bening, RBI governor said. RBI projected the headline inflation to accelerate to 4.5 percent by March 2019 quarter with upside risks. Inflation outlook needs a close vigil over the next few months and several upside risks persist, the RBI governor said.
GDP: RBI’s survey indicators and model forecasts reveal that real GDP growth is projected to improve from 6.7% in 2017-18 to 7.4% in 2018-19. As per RBI, economy would grow at 8.2% in Q1, followed by 7.4% in Q2, 7.3% in Q3 and 7.1% in Q4 – with risks broadly balanced.
NBFC sector: RBI governor Urjit Patel said that the measures taken by the government on IL&FS are timely and appropriate, which will help stabilise the situation. RBI Deputy Governor NS Vishwanathan said that the central bank is closely monitoring NBFC sector. NBFCs higher reliance on commercial papers led to asset-liability mismatch, he said. Looking at norms to strengthen NBFC’s asset liability management and the committee doesn’t see IL&FS issue having systemic implication IL&FS crisis, he added.
Tariff war: RBI Governor, Urjit Patel said the risks emerging from US Fed tightening are further escalating tariff wars. The global trade is losing ground due to tariff wars, he added.
Fiscal slippage: RBI governor said fiscal slippage by states or centre will have bearing on inflation outlook. The tighter global and local financial conditions could pose risk to growth, he added.
Liquidity situation: RBI deputy governor Viral Acharya said that liquidity has remained largely neutral in April-September period. RBI will continue to proactively manage system liquidity, he added. The evolving situation will dictate choice of liquidity mgmt tools, he added. RBI, SEBI and government are closely monitoring money market conditions, he added. He also urged financial companies to rely on equities, long-term financing to meet asset funding needs.