Rate cut dilemma remains as RBI wary on Inflation
In the last policy announcement, the monetary policy committee headed by RBI governor Urjit Patel kept repo rate unchanged at 6% with a neutral stance citing that rising consumer prices will threaten their trajectory for inflation.
After inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus, the government as well as India Inc expect a “rate cut” from the Reserve Bank of India (RBI)'s fifth bi-monthly monetary policy announcement on Wednesday.
Finance Ministry officials in a Reuters report last week stated that the government expects a reduction in official interest rates in the coming months as it expects inflation to stay close to a 4% target.
Also, they feared that higher oil prices could further fuel inflation making it difficult for a rate cut, which is why they expect RBI to trim down policy repo rate in this meet.
While Ficci (Federation of Indian Chambers of Commerce and Industry) president Pankaj Patel told PTI, that overall inflation remains within RBI's indicative trajectory and this is an encouraging sign.
This is opposite to what economists are expecting. They believe RBI will maintain a status quo.
In the last announcement, the monetary policy committee (MPC) headed by RBI governor Urjit Patel kept policy repo rate unchanged at 6% with a neutral stance citing that rising consumer prices will threaten their trajectory for inflation.
Now the economic situation is such that inflation, both Consumer Price Index (CPI) and Wholesale Price Index (WPI), has risen.
The CPI inflation rose over analysts' expectations at 3.6% in October 2017 compared to 3.30% in September 2017, on the back of 4% rise in vegetable prices. Food inflation picked up at 1.9% from 1.2%, while core inflation remained with the RBI's measure at 4.6% on year-on-year (YoY) basis, despite rise in petrol and diesel prices.
They said, "We expect CPI inflation to rise above the midpoint of RBI’s target band (to 5.3% in FY19) due to a pickup in food and commodity prices, and expect the RBI to hike policy rates by 75 basis points by mid-2019 ”
Amid the ongoing debates of 'status quo' or 'rate hike', the RBI's outlook on the country's economy will be keenly watched tomorrow.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.