The RBI’s Monetary Policy Committee (MPC) chose to maintain status quo and retain its key policy rate, the repo rate at 6 per cent, in its first bi-monthly meeting for the new fiscal.

The 6-member committee voted 5:1 for the decision.

Chetan Ghate, Pami Dua, Ravindra H. Dholakia, Viral V. Acharya and Urjit R. Patel voted in favour of the monetary policy decision. Only Michael Debabrata Patra voted for an increase in the policy rate of 25 basis points.

The decision comes against the backdrop of easing inflation numbers in the recent past. The Consumer price index (CPI) had fallen to 4.4 per cent in february from 5.01 per cent in January. This is, however, expected to move up soon as the base effect wears off and due to other factors such as oil prices moving up and higher minimum support prices to be announced soon following budget commitments.

Sees lower inflation

In a key development, the RBI's MPC has lowered its inflation projections for the coming fiscal.  In its last policy it had projected inflation in the first half of the fiscal to be around 5.1 per cent to 5.6 per cent.   It has now projected inflation to be between 4.7 per cent and 5.1 per cent in the first half.

On its projection for Gross Value Added (GVA), the MPC seemed to strike a more optimistic note and expected it to strengthen from 6.6 per cent to 7.4 per cent for the new fiscal.  At its earlier policy meeting in February it had projected GVA would be around 7.2 per cent for the first half of the new fiscal.

The MPC flagged its usual concerns about inflation.  It said in its statement, "First, the revised formula for MSP as announced in the Union Budget 2018-19 for kharif crops may have an impact on inflation, although the exact magnitude will be known only in the coming months. Second,the staggered impact of HRA revisions by various state governments may push headline inflation up. While the statistical impact of the HRA revisions will be looked through, there is a need to watch out for any second round effects. Third , in case there is any further fiscal slippage from the Union Budget estimates for 2018-19 or the medium-term path, it could adversely impact the outlook on inflation. There are also risks to inflation from fiscal slippages at the level of states on account of higher committed revenue expenditure.Fourth, should the monsoon turn deficient temporally and/or spatially, it may have a significant bearing on food inflation. Fifth, firms polled in the Reserve Bank’s Industrial Outlook Survey expect input and output prices to rise , going forward. Sixth, recent volatility in crude prices has imparted considerable uncertainty to the near-term outlook."

 

Trade wars and impact

Economists had said earlier that they would be keenly parsing the statement to find out what the RBI thought about the trade wars and the domestic economy's preparedness to cope with its effects.   The RBI's MPC did not give anything away on that score and confined itself to stating that while there was robust economic activity and momentum in both developed and emerging economies, financial market volatility and potential trade wars were a threat to that outlook. 

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