RBI monetary policy review: Patel says,remain vigilant on how actual inflation unfolds; repo rate at 6%

RBI Governor Urjit Patel says, "Over the past two days the MPC committee, reviewed evolving global and domestic macro-economic conditions, and decided to hold the policy repo rate at 6%. While continuing with the neutral stance of monetary policy. In doing so, the MPC reiterates it's commitment to keep inflation rate at the target of 4%, and to remain vigilant on how actual inflation unfolds in other words we continue to be data dependent."

Patel added, "The MPC noted, that global economic activity and trade have gathered momentum in span, the financial market volatility and potential trade wars pose a threat to the outlook."

Moreover, the governor also highlighted the concerns over crude oil prices which have become volatile in the recent period, consider uncertain.

On Domestic economy, Patel also highlighted points on GDP data. 

Garima Kapoor, Economist, Elara Capital said, "In line with our expectation, MPC maintained status quo in today’s monetary policy. The recent softening in retail inflation that had firmed up during early months of winter, supported RBI’s decision to maintain status-quo. The recent moderation also supported a downward revision to RBI’s forecasts for FY19 CPI inflation. However, we expect headline CPI inflation to overshoot RBI’s forecast."

kapoor added, 'We expect retail inflation to remain in the range of 4.7%-5.6% in H1 FY19 (vs. RBI’s forecast of 4.7%-5.1%) and 3.7%-5.0% in H2 FY19 (vs. RBI’s forecast of 4.4%). We believe factors such as the expected trajectory of food prices (following new formula for MSP revision), trend in crude oil and other commodity prices and outlook for South West Monsoon will remain key in determining policy trajectory. We expect one rate hike of 25 bps towards second half of FY19."
 

The minutes of the MPC’s meeting will be published by April 19, 2018.The next meeting of the MPC is scheduled on June 5 and 6, 2018.

Motilal Oswal, Chairman & MD, Motilal Oswal Financial Services

As expected RBI Guv left all key rates unchanged. It is imperative in the global scenario to hold the horses of reaction to rates. Two continents are going to tighten the economy, in that situation to keep status quo is the best way, and observe the changes. From the Indian context, we are at a reasonably good base rate and financial sector is now passing on the benefits of lower rates slowly, in the economy. Markets have corrected very well and now awaiting there bounces in the corporate earnings momentum. We think 10k on Nifty and 33k on Sensex are good levels to invest in the equity markets from the long-term perspective. We will witness some turbulence, thanks to global trade fight, but subject to that volatility, these are good levels for retail investors to commit some money.

At 2:37 pm, the Sensex was trading at 33,511, up 492.76 points, while the broader Nifty50 was ruling at 10,290, up 162.55 points.

It was a pragmatic policy. RBI has gone softer on monetary policy. Inflation numbers are positive, the expectations are low. So, we can infer rate hike will not be on cards in 2018. 

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

RBI revised CPI inflation for 2018-19 to 4.7-5.1% in H1:2018-19 and 4.4% in H2, including the HRA impact for central government employees, with risks tilted to the upside. 

Excluding the impact of HRA revisions, CPI inflation is projected at 4.4-4.7% in H1:2018-19 and 4.4% in H2.

In the last policy in February 2018 month, the RBI projected CPI inflation at 5.1% in Q4:2017-18; and in the range of 5.1-5.6 per cent in H1:2018-19 and 4.5-4.6% in H2, including the HRA impact, with risks tilted to the upside. 

The CPI inflation has eased down in the past two months of 2018. CPI which stood at 5.21% at 17-month high, recorded a growth rate of 5.07% in January 2018 and further to 4.44% in February 2018. 

RBI monetary policy review 2018: RBI Governor Urjit Patel along with six-member Monetary Policy Committee (MPC) on Thursday, maintained status quo for the fourth time in a row during first bi-monthly monetary policy of FY19.

Policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0%. Consequently, the reverse repo rate under the LAF remains at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25%.

Further, the central bank has also remains firm on its neutral stance, which has been changed from earlier accomodative. 

The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth. 

Care Ratings said, “Given these considerations, RBI is likely to maintain an unchanged stance on policy rates. The important issue will be the tone of the policy- will it be hawkish or neutral. We would tend to think that there would be more than neutral indications with a tint of hawkishness.”

Ahead of RBI monetary policy on Thursday, the banking stocks were among top gainers on stock exchanges. 

The S&P BSE Bankex was trading at 27427.86 above 483.39 points or 1.79%. All stocks were trading positive in the index with ICICI Bank taking the lead at Rs 276.75 per piece up by 3.09%, the bank was followed by Bank of Baroda at Rs 143.95 per piece above 2.86%, State Bank of India at Rs 253.15 per piece higher by 2.57%, IndusInd Bank at Rs 1827.85 per piece up 1.88% and Punjab National Bank at Rs 96.15 per piece up 1.85%. 

Other banks on the index that gained were - Yes Bank at Rs 310.35 per piece up 1.54%, Axis Bank at Rs 496.95 per piece up 1.39%, Federal Bank at Rs 92.60 per piece up 1.31%, Kotak Mahindra Bank at Rs 1091.75 per piece up 1.26% and HDFC Bank at Rs 1896.75 per piece up 0.63%. 

On the other hand, Nifty Bank also grew by 1.48% trading at 24,487.40. Meanwhile, Nifty PSU Bank was trading at 2,926.55 up 2.60%, while Nifty Private Bank was trading at 13,821.65 up 1.52%.

When inflation were high in 2010, RBI increased repo rate by 11 times in the early months of the year. Price stability has always been main focus of RBI, and inflation is usually caused by supply constraints and increase in crude oil prices. 

Morgan Stanley said, “With growth tracking in line and inflation tracking slightly below the RBI’s projections, we don’t expect any changes to policy rates and stance at the upcoming meeting. With a 5-1 vote (same as the previous meeting) with Dr Patra likely to reiterate his call for a 25 bps rate hike.”

The Indian Rupee is trading at 65.025 above 0.007 points or 0.01% against US dollar benchmark indices. However in early trade, the rupee strengthened by 15 paise to 65 against the dollar. The uptrend was followed by fresh selling of the greenback by exporters and banks ahead of the RBI's monetary policy outcome later in the day. 

Dealers in a PTI report said,  dollar's weakness against some other currencies overseas and early gains in domestic equity markets supported the rupee.

Ahead of the RBI policy announcement, the benchmark Sensex indices was trading at 33,470.37 above 451.30 points or 1.37%. On the other hand, Nifty 50, jumped by over 146.80 points or 1.45%, trading at 10,275.20. 

The Monetary Policy Report – April 2018 along with the First Bi –monthly Monetary Policy Statement for the year 2018-19, will be available on the RBI website at 2.30 pm on Thursday.

There are global risk that forces RBI to maintain a status quo. Globally, interest rates are on rise as developed economies’ central banks are looking to unwind ultra-accommodative policies. 

As per analysts at Edelweiss Financial Services, while the US  Fed is continuing its path of raising interest rates and shrinking balance sheet, the ECB too seems to becoming less accommodative as the Euro area’s growth remains strong. This scenario of tightening global liquidity will keep RBI cautious. 

A pinch of impact can also be considered due to the trade war between United States and it’s major trading partners..