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RBI expected to hold key interest rate

IANS | Mumbai |


 At its first bi-monthly monetary policy review of the new fiscal, the RBI is expected to continue with its stance of the previous year when the central bank kept its key interest rate unchanged at 6 per cent over three successive reviews.

Although hopeful of a cut in the Reserve Bank of India’s repo, or short-term lending rate for commercial banks, India Inc expects the regulator to also maintain its ‘neutral’ stance on monetary policy that allows the RBI room for moving either way on rates.

In a letter to RBI Governor Urjit Patel, industry body Assocham said the key risks to the retail inflation include higher Minimum Support Prices (MSP) for agricultural items allowed in Budget 2018-19, populist spending in the run-up to the 2019 general elections and strengthening of global crude oil prices.

These risks would leave “very little leeway for the RBI to cut rates in this monetary policy and hence we in Assocham expect the RBI to keep the key interest rates unchanged. The chamber appreciates RBI for maintaining status quo in the previous bi-monthly monetary policy statement”, Secretary General D.S. Rawat said in the letter.

As per the minutes of the previous policy review meeting, the RBI’s Monetary Policy Committee (MPC) was guided by concerns about upside risks to inflation posed by crude oil prices, house rent allowances (HRA) and the budgetary fiscal slippage.

According to official data, retail inflation based on the Consumer Price Index (CPI) fell to 4.44 per cent in February, from 5.07 per cent in January, but remained outside the RBI medium-term target of 4 per cent.

Budget 2018-19, the last full one by the NDA government before the next general elections, contains major support measures like MSP for the stressed agriculture sector and contained an admission of fiscal slippage in meeting the deficit target for the last and current fiscals, which has inflationary implications.

Industry chamber Ficci has pitched for a benign stance in the forthcoming monetary policy Aannouncement on Thursday.

In a statement here, Ficci President Rashesh Shah noted that chamber surveys show that investment growth has not picked up and one of the reasons cited is lack of availability of affordable capital for higher investments.

“We urge the RBI to take a balanced approach in the upcoming meeting of the monetary policy committee and take necessary action to encourage risk taking by business enterprises and release animal spirits. This is critical to boost investments and accelerate the growth of the economy,” he said.

According to Delta Global Partners Founder and Principal Partner Devendra Nevgi, markets are not expecting any action from RBI in terms of changes in policy rate, but the language would be scrutinised closely to ascertain its stance.

At its February meeting, five members of the MPC, including the three external ones and the Governor, voted in favour of the decision, while RBI Executive Director Michael Patra voted for an increase in the policy rate by 25 basis points.