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Statsguru: Analysts expect monetary policy committee to cut rates in 2019

As inflation is expected to undershoot the Monetary Policy Committee's target of 4% plus/minus 2%

Ishan Bakshi 


2018 began on a good note. Gross domestic product (GDP) grew at a healthy 7.7 per cent in the Jan-March quarter, as the economy recovered from the twin shocks of demonetisation and the roll-out of the (GST).

And while growth surged in the subsequent quarter to 8.2 per cent, it slowed down thereafter to 7.1 per cent in Q2FY19, as seen in Chart 1. The Reserve Bank of India (RBI) now expects the economy to grow at 7.2 to 7.3 per cent in the second half of FY19.

And while the held steady over the year, the were down considerably as seen in Chart 2. Bank credit though picked up during the year and has maintained its upward momentum (Chart 3).

On the front, the headline retail rate fell sharply in the second half of the year, driven largely by fall in food prices. Even the core rate, which had remained sticky so far, moderated recently as seen in Chart 4. Further, the recent collapse crude oil prices (Chart 5) has also exerted downward pressure on inflation.

As inflation is expected to undershoot the Monetary Policy Committee’s target of 4 per cent plus/minus 2 per cent, some analysts now expect the committee to cut rates in 2019. The repo rate currently stands at 6.5 per cent as seen in Chart 6.

After plummeting to record lows, the rupee has also staged a modest recovery as seen in Chart 7. And while export growth surged in the middle of the year, faster import growth (Chart 8) meant that the trade deficit will continue to widen, though falling crude oil prices will provide some relief.

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines; compiled by BS Research Bureau

First Published: Mon, December 31 2018. 01:05 IST