RBI likely to maintain status-quo on interest rate

Business

02 Dec 2018

RBI likely to keep interest rate unchanged on December 5

The Reserve Bank is likely to maintain status quo on interest rate in the upcoming monetary policy review on December 5 despite moderation in economic growth and easing inflation, suggested experts.

The six-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, will meet for three days starting tomorrow for the fifth bi-monthly monetary policy review of the current financial year.

Here's more.

Policy review

RBI had kept interest rates unchanged in previous policy review

After back-to-back hikes since June, the RBI had kept interest rates unchanged in the previous policy review in October, surprising markets that had expected a rate hike to support the tumbling rupee and combat inflationary pressures from high oil prices.

The Repo rate, at which the Reserve Bank of India lends to other banks, was left unchanged at 6.5%.

Rupee value

Since previous announcement, rupee appreciated against the US dollar

The MPC's decision, after the three-day meeting, will be announced in the afternoon of December 5.

Since the previous policy announcement, Rupee has appreciated against the US dollar and moved above the psychologically crucial mark of 70.

Global crude oil prices too have softened significantly, slipping below $60 per barrel from $86.

However, India's economic growth slowed down in the September quarter.

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CSO data

Indian economy grew by 8.2% in first quarter of 2018-19

The growth in Gross Domestic Product (GDP) in July-September is the lowest in three quarters but it is better than 6.3% in the same period of the previous year.

The Indian economy had grown by 8.2% in the first quarter of the current fiscal year that began in April, according to data released by the Central Statistics Office (CSO).

MPC estimated 4.5% inflation rate in first quarter of 2019-20

The MPC in its last policy had estimated inflation at 3.9-4.5% in the second half of the fiscal and 4.8% in first quarter of 2019-20. It expects the inflation at 2.9-4.3% in the second half of the fiscal and 4.5% in first quarter of 2019-20.

Expectations

Softer retail fuel prices expected to push core inflation lower

"The softer-than-expected inflation prints are on the back of benign food inflation, especially as most Kharif crop prices remain well below the MSP prices," Kotak Research said, adding it expects RBI to maintain status quo.

"While softer retail fuel-prices will push core inflation lower, there will be significant divergence from headline inflation mainly on the back of higher prices of education, health," it added.

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