The Reserve Bank is unlikely to cut rates at its policy review next week but the tone of the statement will be less hawkish than the previous one, domestic rating agency Icra said today.
The Reserve Bank is unlikely to cut rates at its policy review next week but the tone of the statement will be less hawkish than the previous one, domestic rating agency Icra said today. “Several inflation risks highlighted by the MPC (monetary policy committee) in April have subsequently abated, with the improved outlook for the monsoon, rate structure of the goods and services tax (GST) and easing of commodity prices,” Icra MD and group CEO Naresh Takkar said.
He said the headline inflation has come in below the 4 per cent mark — which is the medium term target set for the RBI by the government — for the sixth consecutive month. Given the ebbing inflation risks, the agency also expects the tone of the policy statement and the MPC minutes to be less hawkish than the one in April. “The MPC may choose to observe the actual progress of the monsoon and the adjustment during the transition to the GST, prior to reducing the policy rate or reversing the stance back to accommodative from neutral,” Takkar said.
The less hawkish statement may lead to softening of some bond yields, he said. The CPI inflation eased sharply to a series-low 3 per cent for April, led by food inflation. The core-CPI inflation, excluding food and beverages and fuel and light, declined to 4.5 per cent in April from 4.9 per cent in previous year. It can be noted that the Reserve Bank had surprised all by announcing a shift in the policy stance to “neutral” from “accommodative” earlier this year, and followed it up by flagging specific concerns and underlining the need to achieve 4 per cent CPI number.
The MPC had said it expects CPI to rise to 5 per cent in the second half of fiscal 2017-18 from 4.5 per cent in the first half. “Given the easing of some inflation risks, the MPC may revise its CPI inflation outlook for FY18 in the upcoming policy meeting,” Icra said. The RBI may also revise its growth forecast of 7.4 per cent for the fiscal following the release of the updated FY2017 growth figures by the Central Statistics Office expected this week, the rating firm said.