RBI likely to keep policy rates on hold due to high inflation risks

In the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting, which will be held in Mumbai on Tuesday, the apex bank is expected to keep policy rates on hold for this week.

The six-member MPC, which is headed by RBI Governor Urijit Patel will meet for the sixth bi-monthly Monetary Policy Statement for 2017-18, later in the day.

However, the bank may toughen its warning against inflation, lying on the ground for a hike in 2018 after prices accelerated at the fastest pace in the last 17 months.

The bank is also worried about high global crude prices.

Though RBI has held the rates steady since a 25 basis point cut in August 2017, the prospects of rate hike have increased, as annual inflation accelerated to 5.21 percent in December 2017.

Further, in the Union Budget, which was presented last week, the government proposed to buy agricultural produce at 1.5 times the cost of production, marking a major policy shift after keeping the average Minimum Support Price (MSP) increase in low single digits over the past three years.

This move may change the inflation trajectory in a country where at least three in five citizens rely on farm output for a living.