Contrary to expectations, the monetary policy committee (MPC) voted to keep the benchmark repo rate unchanged in its latest meeting. With the six-member committee voting five to one to maintain the status quo, the repo rate stands at 6.5 per cent as seen in Chart 1.
While the recent data showed that the inflation rate had moderated with the consumer price index printing at 3.69 per cent in August (Chart 2), economists were concerned about the upside risks to inflation stemming from the rise in crude oil prices and the rupee’s sharp fall.
And while there was also concern that the rupee’s sharp fall (Chart 4) would also stoke inflation, the RBI has lowered its earlier inflation forecast of 4.8 per cent in the second half of FY19 to 3.9-4.5 per cent, and from 5 per cent in Q1FY20 to 4.8 per cent (Chart 5). However, as seen in Chart 6, the RBI’s household survey reported a sharp uptick of 50 basis points in three-month ahead inflation expectations over the previous round, even as one-year ahead expectations moderated by 30 basis points.
On the growth front, with the recent data showing that industrial production is maintaining its growth momentum (Chart 7), the RBI has retained its GDP growth projection for 2018-19 at 7.4 per cent. On liquidity conditions, the policy document noted that the RBI had conducted two open market operations in the second half of September to inject Rs 200 billion of durable liquidity (Chart 8).
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Compiled by BS Research Bureau