India’s central bank to adopt wait-andwatch approach
MUMBAI: The newly-constituted Monetary Policy Committee (MPC) headed by Reserve Bank of India RBI Governor Urjit Patel is unlikely to lower rates at its maiden policy review on Tuesday as it awaits more supporting data on inflation, experts said.
The monetary policy review on October 4 will be the first by the six-member MPC as well as Governor Patel, who as the deputy governor had described the RBI as an owl when it comes to inflation management.
“I don’t think the Reserve Bank is going to change rates as inflation — both wholesale price index (WPI) and consumer price index (CPI) — have not softened much,” Bank of Maharashtra Managing Director and Chief Executive R P Marathe told PTI.
August retail inflation
August retail inflation eased to a five-month low of 5.05 per cent but WPI inflation climbed to a twoyear high of 3.74 per cent.
Before the dip in August, both the retail as well as wholesale price indices were on a continuous upward spiral.
The government had in August notified 4 per cent inflation target with a range of plus/minus 2 per cent for the next five years under the monetary policy framework agreement with the Reserve Bank.
Patel was the one who wrote the inflation glide path for RBI when he was deputy to former Governor Rajan, and analysts say it is unlikely that he will jettison his guard on price rise, especially under the new inflation targeting framework.
Unlikely to cut rate
“RBI is unlikely to cut rate this time,” Union Bank of India Chairman and Managing Director Arun Tiwari said.
On his policy expectations from the new Governor, he said Patel may announce “some more measures related to resolution of nonperforming assets.”
Rating agency Crisil also thinks there will be no rate cut on Tuesday as “RBI may choose to wait for some more time before wielding the knife as inflationary trends may accelerate going forward.”
“Risks to inflation could emanate from high protein inflation, which has recorded double-digit growth for 14 consecutive months, services inflation, especially in rural areas, which is keeping core inflation high and sticky and surprise pick up in oil prices,” Crisil said in a recent note.
Another rating agency India Rating said, the sharp fall in retail inflation in August has accentuated the rate cut proposition in the next quarter itself, though it has made the RBI’s target of bringing retail price inflation down to 5 per cent by March 2017 achievable.
“But it may be early to rejoice given the baffling behaviour of retail inflation in the past.
The cyclical components either aggravate or soften it as is evident from the movement in wholesale prices,” India Rating said.