RBI monetary policy update

RBI MPC MEETING OUTCOME OUTLOOK ALERT::: The Reserve Bank of India (RBI) is likely to leave the repo-rate unchanged at 6.50% - for the 3rd successive time, when the Monetary Policy Committee (MPC) concludes it’s 6th bi-monthly/last meeting for the current fiscal 2018-19 (FY19) - today, according to a poll of 25 economists, treasurers, & mutual-fund (MF) houses. However, the country’s apex/central bank's rate-setting panel may change it’s stance to "Neutral" from "Calibrated Tightening" - after a fall in inflation for several months. The RBI’s MPC will announce it’s decision - at 1145 IST today, as it concludes it’s 3-day meeting that began on Tuesday (5th Feb’19).

Context::: After the MPC hiked policy rate by a cumulative 50 basis-points (bps) - across Jun-Aug’18, & tightened it’s stance to "Calibrated Tightening" in Oct’18, headline retail inflation has dropped sharply - forcing the committee to explore the possibility of beating a hasty retreat in Dec’18. From 4.92% in Jun’18, Consumer Price Index (CPI)-based inflation has fallen to an 18-month low of 2.19% in Dec’18 - staying well below the RBI’s medium-term target of 4% for 5 consecutive months.

In Dec’18, in the post-policy press conference, former RBI governor - Urjit Patel had sent markets soaring, when he said if the expected upside risks to inflation did not materialise or were muted in their impact - there was a "possibility of space opening up for commensurate policy actions by the MPC". However, Patel's resignation days after the policy that shocked everyone, as well as minutes of 3-5 Dec’18 MPC meeting - seemingly lowered expectation of a rate-cut at it’s next scheduled meeting in Feb’19.

However, appointment of former economic affairs secretary - Shaktikanta Das as the RBI governor, & a further fall in inflation - has convinced market participants that the rate-setting panel will relax it’s stance, at least on coming Thursday (7th Feb’19). Das, widely seen as being more dovish than Urjit Patel, is expected to lean towards easing & potentially holds the key to shifting the balance in favour of the doves, thanks to his casting vote in case of a 3-3 tie.

via Internet