India cenbank chief Patel: 2018/19 inflation projected at around 4.5 pct

Gladys Abbott
February 8, 2018

This is the third time consecutively when the Monetary Policy Committee of RBI chose to keep the Repo Rate and Reverse Repo Rate unchanged at 6% & 5.75% under LAF respectively.

Anuj Puri, Chairman, ANAROCK Property Consultants The Reserve Bank of India's stance of keeping the repo rate unchanged at 6% is exactly along the lines of our expectations. The central bank expects the consumer price inflation to hit 5.1 per cent in the current quarter in view of the increase in fuel prices. It said the fiscal slippage has broader macro-financial implications on economy-wide borrowing costs, which have already started rising.

The six-member MPC, which is headed by RBI Governor Urijit Patel will meet for the sixth bi-monthly Monetary Policy Statement for 2017-18, later in the day.

In the last few months, surging energy prices have caused the inflation rate to rise beyond the RBI's target.

The Reserve Bank opted for the widely expected status quo in key rates citing inflation concerns and flagged risks from wider fiscal deficit.

Surprisingly, the central bank has forecast slowing inflation but a quickening GVA growth for the next fiscal year.

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Analysts say, RBI maintaining a "neutral" stance will help contain the rally in bond yields for now.

The Union Budget 2018-19 would stoke demand but worsening public finances may crowd out private funding and investment, the RBI said. "This may feed into inflation", he said.

The second challenge is more hard than the first one as transmission of lower rates can happen with the improvement of asset quality of the banking system.

Upside risks to inflation include oil prices and the staggered impact of the implementation of HRA by various State Governments. Third, Budget has proposed revised MSP for kharif crops, although its exact impact on inflation can't be fully assessed at this stage.

RBI has lowered the economic growth projection to 6.6 per cent for 2017-18 from 6.7 per cent. Or - will the RBI governor keep the policy repo rate intact or increase it to factor in the inflationary forces playing out sedately in the last couple of months and far more aggressively in the last few days?

However, minutes from the RBI's December policy meeting showed policymakers were increasingly anxious about inflation.

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