The first bi-monthly monetary policy review for FY19 will be announced by the Reserve Bank of India (RBI) on Thursday.
Here is what the analysts have to say ahead of the RBI’s monetary policy decision:
We expect status quo in policy stance. Consumer Price Index (CPI) inflation in February 2018 at 4.4% eased from a month ago-level of 5.07%. This was contained mainly due to food items which grew by 3.3%. However, inflation in non-food items, including fuel, housing and clothing and footwear, continue to remain high. In addition to this, the RBI has projected CPI inflation to average 5.1-5.6% during the first half of FY19 in the last monetary policy review. This is a signal that interest rates may not be eased this year and that there could be an increase. — CARE Ratings
We believe the Monetary Policy Committee (MPC) will opt for status quo in the upcoming policy. There is no clarity yet on how monsoon will pan out this year. While some forecasters anticipate normal monsoon, others believe rainfall will be marginally below average. Although we believe the impact of monsoon rainfall on food production and subsequently food prices is declining over the years, monsoon is still a significant factor in determining livelihood and sentiment in rural sector. Also, the government is expected to implement new Minimum Support Price (MSP) formula for kharif crops from June 18. Our research shows that if the new formula is implemented, headline inflation could go up by 71-84 basis points. We expect headline CPI at 4.5% in FY19 without higher MSP impact. Incorporating higher MSP impact headline inflation could easily cross 5%. Hence, we believe the MPC may want to wait to get better clarity on monsoon outlook and the implementation of new MSP formula before taking a call on rates. — ICICI Securities
Recently, oil prices rallied following supply cut by OPEC and Russia. As a result, domestic oil prices were also hiked — domestic prices of petrol and diesel are now at an all-time high. This could nudge up inflation in the coming months. — ICICI Securities
We expect RBI to leave repo rate unchanged. Globally, interest rates are on rise as developed economies’ central banks are looking to unwind ultra-accommodative policies. While the Fed is continuing its path of raising interest rates and shrinking balance sheet, the ECB too seems to becoming less accommodative as the Euro area’s growth remains strong. This scenario of tightening global liquidity will keep RBI cautious. — Edelweiss
The upcoming MPC meeting holds significance in terms of the guidance the RBI has to offer. General market view is that of an extended pause. Market would also want to see the MPC’s reaction to the recent axe in government borrowing programme and its view on the fiscal position thereof. Lastly, though our view is that of status quo, it would be interesting to see the MPC’s accompanying stance in the light of moderation in CPI domestically and its reaction to the recent global developments. — Lakshmi Iyer , CIO, Debt & Head of Products, Kotak Mutual Fund
Prospects of interest rate hikes by U.S. Federal Reserve, European Central Bank and Bank of England will limit the chances of the RBI going in for a rate cut. Escalation of trade conflicts in the aftermath of U.S. increasing its tariffs is also a concern. A commentary on the progress on non-performing assets (NPAs) with respect to the Insolvency and Bankruptcy code may be expected as also the recent announcement on allowing the deferment of booking of mark to market bond losses by bank. — CARE Ratings
