RBI Monetary Policy Review today: 3 key reasons why RBI is unlikely to change policy rates

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Updated: April 5, 2018 9:32:08 AM

In its first Monetary Policy Review in the new financial year, India’s central bank RBI is unlikely to change key policy rates on concerns over rising inflation due to globally rising crude oil prices as well as the uncertain global economy.

RBI, PSB, NPA, economyWhile industry body Ficci has pitched for a benign stance in RBI monetary policy to aid revival of the economy, the RBI will take cognisance of rising global risk-free rates. (Image: Reuters)

RBI Monetary Policy Committee Meeting: In its first Monetary Policy Review in the new financial year, India’s central bank RBI is unlikely to change key policy rates on concerns over rising inflation due to globally rising crude oil prices as well as the uncertain global economy. In its previous review, the apex bank had kept the repo rate unchanged for the third time in a row at 6% on the concerns of higher inflation citing factors such as staggered housing rent allowances (HRA) implementation, India’s precarious fiscal slippages and rising crude oil prices. Notably, since its previous review, the global crude oil prices have been on an upswing, leading to oil marketing companies back home to hike petrol prices to a near 5-year high, and diesel prices to all-time high levels. We take a closer look at why RBI is unlikely to change interest rates in today’s monetary policy review.

Rising global interest rates

While industry body Ficci has pitched for a benign stance in RBI monetary policy to aid revival of the economy, the RBI will take cognisance of rising global risk-free rates. Notably, the US Federal Reserve had raised interest rates by a 25 basis points  and has also signalled that it is on track to raise rates two more times in calendar year 2018. FICCI says that over the last few months, the signs of economic recovery are visible, and there is a need to further push the growth levers to see a complete turnaround in manufacturing and enable investments to reach full scale, PTI reported.

MSP on Kharif crops to impact inflation

Following the Narendra Modi-led government’s announcement of an increase in minimum support price for kharif crops to a minimum of one and half times of their production cost, RBI said in its MPC minutes last time that the move could lead to a rise in inflation. According to Assocham, the central bank is likely to maintain status quo to control inflationary pressures arising from MSP announced to farmers.

Clarity on monsoons; global conditions

According to a note from Kotak Mahindra Bank, the RBI is expected to be on an extended pause as inflation is likely to remain at the range of 4.5% in 2018-19. Noting that RBI’s Monetary Policy Committee (MPC) is likely to maintain status quo, the firm said that apex bank will await clarity on monsoon, watch out for the sustainability of high crude oil prices post the winter squeeze, and also monitor global financial conditions.

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