RBI Policy Decision Today: 10 Things To Watch Out For

The Reserve Bank of India (RBI) is widely expected to keep its policy rate (repo rate) on hold today after inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus. The RBI decision is expected at 2:30 pm today. All but two of 54 analysts in a Reuters Poll said the repo rate would be left at 6.00 per cent, the lowest since November 2010. In August, the RBI made its only cut in 2017, of 25 basis points, and in October, it held.

 

RBI Policy Review - 10 Things To Watch Out For

1) Analysts expect the RBI to reiterate concern about inflation, as the annual rate of consumer inflation increased to 3.58 per cent in October, not far from the central bank's 4 per cent target.

2) Another source of RBI discomfort is that core inflation, which excludes food and energy prices, has remained stubbornly high at around 4.5 per cent.

3) With concerns over government's fiscal deficit and rising global crude oil prices, the RBI is likely to reiterate a "neutral" stance, say analysts.

4) On the other hand, the GDP growth recovered to 6.3 per cent in July-September quarter, from 5.7 per cent the previous quarter. "The recovery is a source of comfort to the RBI as it lowers pressure on them to take a growth-supportive stance," said Radhika Rao, an economist at DBS.

5) But the GDP growth pace is still well below the 8 per cent level needed to create millions of jobs each year for youths. That has sparked renewed calls from some government officials for the RBI, which has cut the repo rate by 200 bps since January 2015, to trim again.

6) While analysts rule out a cut now, some say the central bank could soften its tone somewhat and sound more accommodative. "We don't expect the tone to be outright hawkish as the RBI might need to trim down its growth projections for FY18, which at current levels is optimistic," said Ms Rao "But they would still sound cautious on inflation and positive on growth."

7) The RBI in October had lowered its 2017-18 economic growth projection to 6.7 per cent for 2017-18 from its August forecast of 7.3 per cent in view of issues with GST implementation and lower kharif output estimates.

8) In October, the RBI had also projected inflation to accelerate to 4.2 to 4.6 per cent in the six months to March, driven by multiple factors including pay hikes for government employees.

9) With inflation trajectory is likely to remain upward in the coming months, many analysts see a prolonged pause from RBI. "We expect a hawkish hold from the RBI..and policy rates to remain unchanged through 2018," global financial services major Nomura said in a report.

10) The central bank is also likely to be concerned that the government may have a wider fiscal deficit in the fiscal year ending in March than the 3.2 per cent target, say analysts. The government is due to unveil its budget for the next fiscal year in early February.