As the the Reserve Bank of India (RBI) Monetary Policy Committee kept the repo rate unchanged at 6%, the bar continues to be high for rate cuts, but here's why experts feel that concerns over slow economic growth may force the central bank to act on it.
After the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) kept the repo rate unchanged at 6%, global research firm Credit Suisse said that the bar continues to be high for rate cuts, adding that growth disappointment may warrant one. The current repo rate, last revised in August, is lowest in seven years since November 2010. “On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent,” RBI said in its policy statement.
Earlier, Credit Suisse had pointed out that RBI may not turn too hawkish. “Pressure points for inflation are on the higher side but I don’t expect them to sound very hawkish given the fact that we expect goods and services tax (GST) rate cuts, which have happened and further cuts which may happen to filter in through into consumer price index (CPI) sometime after November,” Deepali Bhargava, Economist at Credit Suisse told CNBC TV18 before the fifth bi-monthly review yesterday.
Credit Suisse also said that a slight increase in inflation forecast is an adjustment for rising global crude oil prices. The RBI expects the inflation to stay in 4.3-4.7 per cent in December and March quarters, an increase by 10 basis points from 4.2%-4.6% in its October review. “The October bi-monthly statement projected inflation to rise and range between 4.2-4.6 per cent in the second half of this year, including the impact of increase in house rent allowance (HRA) by the Centre. The staggered impact of HRA increases by various state governments may push up housing inflation further in 2018, with attendant second order effects,” RBI said in its note, while increasing the forecast.
The global firm said that CPI inflation should ease by the end of the year. “The decision of the MPC (Monetary Policy Committee) is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” RBI had noted in its report.
RBI highlighted many factors which could put upward pressure on inflation including- rising food and fuel prices, increase in input costs, farm loan waivers in some states, impact of HRA likely to peak in December and the continued rise in global crude prices. Credit Suisse said that it was “less concerned” about these risks, adding that it was optimistic about about RBI’s growth forecast for the rest of financial year.