When the Reserve Bank of India (RBI) decided to hike policy repo rate by 25 basis points to 6.25% from previous 6% in June policy, experts were of the opinion that similar action is going to continue for another two policies. However, two opinions have now emerged. There is a section of analysts that believes the RBI will decide to maintain a status quo in August policy, which is scheduled for tomorrow, another section still reiterates that a rate hike is on cards. The RBI meet will be chaired by RBI Governor Urjit Patel and six-member Monetary Policy Committee (MPC). 

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Firstly, one needs to remember that RBI is an inflation trajectory central bank and its policy decisions are derived from the performance of Consumer Price Index (CPI) or retail inflation. 

The reason behind rate hike in previous policy was due to a list of factors that surround CPI, which will keep the indicator under pressure going ahead. RBI revised and projected CPI inflation for 2018-19 to 4.8-4.9 per cent in H1 and 4.7 per cent 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 4.6 per cent in H1 and 4.7 per cent in H2.

India's retail inflation for month of June has gone up to 5 per cent compared to 4.87 per cent in May 2018, according to government data released by the Central Statistics Office. 

Typically, core inflation is defined as headline inflation excluding food and fuel. However, in India, commodities such as petrol, diesel, gold and silver are also part of core CPI. Further, in the past one year, housing inflation has been statistically inflated owing to implementation of governments’ 7th Pay Commission. Hence, the report analyzes adjusted core CPI (core CPI ex-commodities and housing).