INSUBCONTINENT EXCLUSIVE:
By DK AggarwalAnecdotes such as better-than-expected GDP data and rising crude oil prices, which have posed additional upside risks to
headline inflation, are all pointing towards a more hawkish tone from the Reserve Bank of India (RBI) in its upcoming meeting, which is
scheduled on June 4-6.
The dramatic shift in expectations was driven by high oil prices and rising bond yields
recovery in the fourth quarter of 2017-18 compared with a 6.1 per cent growth in the same period last year.
Another data showed build-up of
inflationary pressure due to a surge in global oil prices
However, it cut inflation projections in the last meeting, raising expectations that borrowing costs would remain on hold.
The deviation
rates going forward.
Even the minutes of April meeting showed that two of the six MPC members have already decided to vote in favour of a 25
The deputy governor in charge of monetary policy, Viral Acharya, has clarified that he would vote for a withdrawal in monetary accommodation
It is expected that RBI will keep its policy rates unchanged in the forthcoming monetary policy review as apart from rising crude oil
prices, RBI will closely watch other developments such as announcements of hikes in minimum support prices (MSP) for the summer (kharif)
crops, monsoon outcome and more inflation data before going on a rate hiking cycle.
Besides, RBI will also closely watch the risk of fiscal
slippages in the runup to the 2019 general elections, which is likely to add further pressure on the rupee.
The recent weakness seen in the
Indian currency may urge RBI to tighten its stance, taking cues from emerging markets central banks
However, the other side of the story is that if RBI goes for a rate hike, it would accelerate the ongoing rise in bank deposit and lending
