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RBI likely to harden monetary policy stance on Wednesday

IANS  |  Mumbai 

With retail in having regained the 5 per cent mark, the RBI Committee (MPC) began its extraordinary three-day consultations on Monday for the second time before an announcement of its bi-monthly policy review slated for Wednesday.

A similar three-day meeting of the Reserve of India's (RBI) MPC had preceded the previous policy review in June when, breaking the cycle of rate cuts begun in January 2015, the RBI raised its key interest rate for the first time by 25 basis points (bps) to 6.25 per cent, responding to concerns on from surging global

The MPC had earlier always met over two days before the policy announcement.

In June, the six-member MPC voted unanimously for the rate hike that the central was undertaking after more than four years and came for the first time under the

Retail in touched the 5 per cent mark in June, compared to 4.87 per cent in May and has gone beyond the RBI's revised inflation projection of 4.8-4.9 per cent for the first half of the current fiscal.

The higher inflation last month comes in the backdrop of rising global which have been ruling at over $75 a barrel.

At the time of revising upwards its projection for the fiscal's first half during the June policy review, RBI noted that inflation had remained above the central bank's medium-term target of 4 per cent for more than six months.

The RBI, however, maintained its 'neutral' stance on policy, as it had done over four previous policy reviews when it held the repo, or its short term lending rate for commercial banks, at 6 per cent. This stance allows the RBI to move either way on rates.

In the current scenario, given also that industrial output growth fell in May at 3.2 per cent, as compared to rise of 4.9 per cent in April mainly on account of a decline in manufacturing, analysts are divided on the extent to which RBI will harden its stance on Wednesday.

"On the RBI policy, the markets are divided on policy rate hike in the next weeks meeting. The decision weightage given by MPC to core inflation is crucial and whether RBI changes its stance from neutral to hawkish," said Devendra Nevgi, Founder and Principal Partner,

"RBI is likely to be data dependent and cautious on hikes," he added.

Complicating the situation for the RBI is the fact that interest rates in developed markets were rising after a prolonged period of very low rates. The increased its funds rate in June by 25 bps to a target range of 1.75-2 per cent.

The and the are also in the process of hardening their stance.

--IANS

bc/mr

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, July 30 2018. 17:20 IST
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