RBI is likely to maintain status quo for now, raise rates in August

MUMBAI: Reserve Bank of India’s (RBI) monetary policy committee (MPC) is likely to keep policy rates unchanged on Wednesday, but may raise them at its next meeting in August, say economists.

Of the 15 economists surveyed by 11 expect the central bank to keep the repo rate—the rate at which the central bank infuses liquidity in the banking system—unchanged at 6%. Only four economists expect RBI to raise rates by 25 basis points (bps).

“Although the headline and the core CPI (consumer price index) inflation for April 2018 revealed negative surprises, an immediate rate hike may be premature given the lack of clarity on factors like the 2018 monsoon, minimum support price (MSP) and fiscal risks,”said Naresh Takkar, managing director and group chief executive officer, ICRA. “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 backended rate hike cannot be ruled out, which is likely to be reflected in the tone of the policy document.”

Since the last policy, consumer price inflation has accelerated from 4.4% in February to 4.6% in April, above the central bank’s target. Economists expect all MPC members to concur with RBI deputy governor Viral Acharya’s view in the last policy to shift decisively to vote for a beginning of “withdrawal of accommodation”.

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