INSUBCONTINENT EXCLUSIVE:
The RBI will announce its second bi-monthly monetary policy statement for 2018-19 today afternoon
The
Reserve Bank of India (RBI) is widely expected to adopt a hawkish stance while keeping the key interest rates steady in the June monetary
policy meet, the outcome of which will be revealed at 2:30 pm on Wednesday
The RBI's Monetary Policy Committee (MPC) will announce the resolution under its second bi-monthly monetary policy statement for 2018-19
registered in the quarter ended March 2018.According to a Reuters poll, which was taken before the figures for the gross domestic product
(GDP) were released, 21 of 57 economists, or about 40 per cent, expected the RBI to raise interest rates in the June meeting
However, in a snap poll of 56 economists taken after the GDP data release, 26 of the respondents, or about 46 per cent, said that they
expect the RBI to take the repo rate higher in June
Repo (or repurchase) rate is the rate of interest which the RBI charges to lend short-term loans to the commercial banks.Here are five
things that may guide RBI's interest-rate setting decision today:1) Higher-Than-Expected Rise In Economic Growth (GDP): In the January-March
quarter, the economic growth accelerated to 7.7 per cent, which is a near 2-year high
For fiscal year 2018, GDP expanded at 6.7 per cent, lower than the 7.1 per cent recorded in the previous year
In a higher growth cycle, the central bank is expected to either restrain from cutting the interest rates, or to raise them marginally so to
dissuade the borrowers from further borrowing.2) Faster Acceleration In Inflation: Both retail and wholesale price inflation accelerated at
faster-than-expected rates in April
Retail inflation rose to 4.58 per cent, after easing for three straight months while wholesale inflation rose to 3.18 per cent in April
This was the sixth straight month in which retail inflation level was higher than the RBI's medium-term target of 4 per cent
In case of higher inflation, the RBI is expected to use its most potent weapon - rate hike - to battle the menace of disproportionately
higher price rise.3) Fuel Price Hikes Hit A Speed Bump: While the inflation rose, the global crude oil prices have been softening after
touching the $80 a barrel mark
India meets more than 80 per cent of its crude oil requirement through imports, which makes crude oil the most expensive item on the
The surge in crude oil prices led petrol and diesel rates to break multiple records in May
However, with the growing US production and expectations of higher OPEC (Organization of the Petroleum Exporting Countries) supplies, the
crude oil and fuel rates have now receded
With fuel inflation (which is part of headline inflation) softening for the time being, the incentive for RBI to raise the interest rates
immediately gets abated.4) Rupee Under Pressure: Currency traders and speculators expressed steep caution on Tuesday ahead of the
rate-setting MPC's review decision today
There are some expectations of capital inflows and some dollar selling by foreign banks, which has helped the Indian currency to cut some of
Forex market sentiment also took a beating with India's services sector activity contracting for the first time in three months in May as
new business orders stagnated and cost pressures intensified amid higher fuel prices, according to a business survey
Meanwhile, net investment by FIIs turned positive after a long spell of selling.5) Despite Macroeconomic Indicators Hinting, Rate Hike
Unanticipated: Credit rating agency ICRA, which anticipates that the MPC would leave the repo rate unchanged at 6 per cent, said that the
tone of the policy document is expected to signal an imminent rate hike
"Although the headline and the core CPI inflation for April 2018 revealed negative surprises, an immediate rate hike may be premature, given
the lack of clarity on factors like the 2018 monsoons, the minimum support price (MSPs) and fiscal risks
However, the expected rebound in the average CPI inflation for FY2019, in conjunction with the higher-than-anticipated GDP expansion in Q4
FY2018, suggests that a back-ended rate hike cannot be ruled out, which is likely to be reflected in the tone of the policy document," ICRA
