The Reserve Bank of India (RBI) on Thursday announced its bi-monthly monetary policy. As many analysts expected, the central bank kept the repo rate unchanged at 6% and the reverse repo rate at 5.75%.
Here are the updates:
Reactions to monetary policy
"The monetary policy committee delivered a status quo on expected lines. The surprise element was however a reduction in inflation (CPI) guidance, which also took the bond market by surprise. Hence, we saw a healthy rally in bond markets. Going forward focus would shift to global developments and its impact on global bond yields. Crude could be a big joker in the pack, which is a key determinant for bond yields as well. For now, we maintain that policy rates would be on an extended pause which could be supportive for bond prices. Fixed income investors could continue to stay invested in long duration funds, with fresh investments to be initiated into credit accrual/ short term based strategies,” said Lakshmi Iyer, CIO, Debt & Head of Products, Kotak Mutual Fund.
Jaxay Shah, President, CREDAI National, said: "Status quo in monetary policy leaves real estate sector struggling to fund housing for all. RBI needs to give meaning to grant of infrastructure status to affordable housing."
Anand Shah, Deputy CEO & Head of Investments, BNP Paribas Mutual Fund, said, "While markets widely expected rates to remain unchanged, participants positively reacted to the central bank’s comments on growth and inflation. GDP growth is projected to strengthen from 6.6 percent in 2017-18 to 7.4% in 2018-19 – in the range of 7.3-7.4% in first half and 7.3-7.6% in second half – with risks evenly balanced. CPI inflation forecast for first half of FY19 has been cut to 4.7-5.1% from 5.1-5.6% while inflation forecast for second half of FY19 has been cut to 4.4% from 4.5-4.6%."
Mustafa Nadeem, CEO, Epic Research, said,"The stance was widely expected because there were numbers of things that were in favor. GDP inching to 7.2% and now is projected to 7.3 in the coming Financial Year. Secondly easing of Inflation from 5.21 high to below 5.9% and looks to be contained now with projection in 5.7 to 5.9%. On top of it, we have seen latest monsoon reports projecting the normal forecast paves the way for RBI to keep its stance Neutral"
Analysis:
By K. T. Jagannathan
The RBI decision to keep the key policy rates unchanged is not surprising. And it was in line with the expectation. Some macro numbers such as the easing of consumer price index (CPI) and better GDP (gross domestic product) figure may have given some reasons to expect a benign announcement.
But the RBI has chosen to take a cautious path. There are plenty of uncertainties around the global trade. The hardening crude prices, rising gold prices, the uncertainties surrounding the globe in the wake of trade wars and the U.S. Fed move on rate hike have all combined to add up further to the policy conundrums.
Nevertheless, the RBI appears to be lot more worried on the baseline inflation path. The revised formula for MSP (minimum support price) for kharif corps, the staggered revision of HRA (house rent allowance) by various State governments, fiscal slippages-relate threat to inflation and volatility in crude prices have all weighed heavily on the the monetary policy planners and forced them to tread a very cautious policy stand.
By pointing, however, to a number of positive factors that are sprouting up the Indian economy, the RBI, perhaps, has given some hopes for a benign stand vis-a-vis policy rates moving forward. That, of course, will depend on one too many ifs going forward. Given the fact that the country has already gone into some sort of an election mode, the RBI has done well to adopt a lot saner approach in the current context.
Rate-sensitive stocks:
Shares of auto companies that are sensitive to interest rates were trading higher after the policy announcement.
HeroMoto, Eicher Motors, Tata Motors, Mahindra and Mahindra, Maruti, Bajaj Auto were up in the range of 1.3-3% on BSE. Real estate firm DLF was trading up nearly 4% on BSE, ahead of close of trading on Thursday.
RBI Governor Urjit Patel addresses media
After announcing the monetary policy, RBI Governor Urjit Patel addressed the media.
He said:
"While inflation came down, there are some uncertainties like revised MSP (Minimum Support Price) formula and fiscal slippages. So, a neutral stance has been maintained.
"Normal monsoon and effective food supply management by government could mitigate inflation risks coming from rising crude.
"Statistical impact of HRA increase for central government will continue till mid-2018 and gradually dissipate thereafter."
Markets after policy statement
Indian stock markets continued to be in positive territory after the RBI kept the policy rates unchanged.
Benchmark Sensex was up 534.66 points or 1.62% at 33,553.73 and Nifty was up 1.74% at 10304.25. The RBI's policy stance was in line with the market expectation.
Shares of Bank of Baroda, State Bank of India, ICICI Bank, HDFC Bank and Yes Bank were trading higher on the BSE, after the policy announcement.
Key points of the monetary policy
- Committed to achieving medium term target for headline inflation of 4% on a durable basis, says RBI
- Growth has been recovering and output gap is closing. This is reflected in the credit offtake in recent months.
- Volatility in crude prices has imparted considerable uncertainty to the near-term outlook
- The RBI sees several factors that could accelerate the pace of economic activity.
- Signs of revival in investment activity as reflected in sustained expansion in capital goods production and still rising imports.
- The RBI also finds global demand improving.
RBI statement
“Excluding the impact of HRA revisions, CPI inflation is projected at 4.4-4.7% in H1:2018-19 and 4.4% in H2,” the RBI said,
Several factors were expected to accelerate the pace of economic activity in 2018-19. “First, there are now clearer signs of revival in investment activity as reflected in the sustained expansion in capital goods production and still rising imports, albeit at a slower pace than in January. Second, global demand has been improving, which should encourage exports and boost fresh investment,” it said.
Projects GDP growth to 7.4% in 2018-19
According to the RBI, GDP growth is projected to strengthen to 7.4% cent in 2018-19 – in the range of 7.3-7.4% in H1 and 7.3-7.6% in H2.
“The MPC [Monetary Policy Committee] notes that growth has been recovering and the output gap is closing. This is also reflected in a pick-up in credit offtake in recent months,” the RBI said.
RBI keeps repo rates unchanged
By Manojit Saha
The MPC announces that the interest rates will remain unchanged at 6%- for the fourth consecutive meeting - while maintaining the neutral stance.
More importantly, the central bank has lowered inflation projection for the first half of the current financial year to 4.7-5.1% from 5.1-5.6% and to 4.4% in H2, from 4.5-4.6%.
Analysts expect no change in policy rates
The upcoming MPC meeting holds significance in terms of the guidance the RBI has to offer.
Rate-sensitive stocks rise ahead of RBI policy decision
Shares of interest rate-sensitive stocks like auto, banking and realty rallied in morning trade on the bourses ahead of the Reserve Bank of India’s monetary policy decision today. The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, will announce the resolution of the MPC on its first bi-monthly monetary policy for financial year 2018-19 later in the day.
RBI set to announce monetary policy later today
It is widely expected that the apex bank will keep the key policy rates unchanged. That should bring comfort to markets at large. The retail inflation has slowed to 4.4 per cent in February. And, the December quarter GDP (gross domestic product) grew at 7.2 per cent, the fastest in five quarters. If the mood is to go by, the RBI will keep its policy rates unchanged. Not surprisingly, the Sensex is up by a good number in the morning trade. As we gear up to the RBI announcement, an understanding of the key policy rates will be in order. There we go.
