The Reserve Bank is expected to be in wait-and-watch mode in the near term, and is likely to maintain status quo, through the first half of this year, says a report. According to Kotak Institutional Equities, besides rising retail inflation, the other factors that are expected to keep RBI’s Monetary Policy Committee (MPC) on guard include clarity on monsoons, MSP hike decisions and crude oil prices. “We expect MPC to maintain status quo, at least through 1HCY18, as it awaits clarity on monsoons, MSP hike decisions and sustainability of high crude oil prices post the winter squeeze,” Kotak said in a research note. As per the domestic brokerage firm, Consumer Price Index (CPI) inflation is expected to head towards 5.85 per cent by June 2018. “Overall, even as MPC has sounded vigilant on upside risks, we reckon that amid still-subdued capacity utilisation levels, and ‘need to carefully nurture’ the nascent recovery, the MPC will be in wait-and-watch mode in the near term,” the report noted.
The Reserve Bank kept the key policy rate unchanged at 6 per cent for the third consecutive time on February 7 in view of firming inflation. In its policy review meet, RBI said it is expecting retail inflation to rise to 5.1 per cent in the last quarter of the ongoing fiscal due to rising crude oil prices and hike in salary components of government employees. The central bank has also projected inflation to be in the range of 5.1-5.6 percent in the first half of 2018-19. Meanwhile, global brokerage major Morgan Stanley said the Reserve Bank is expected to go for a rate hike in the last quarter of 2018. “Against the backdrop of a better macro outlook and higher headline inflation, we expect the RBI to start hiking in 4Q18,” Morgan Stanley said.