First MPC meet starts; RBI may opt for status quo on interests
As the newly-constituted Monetary Policy Committee (MPC) started its first meeting on Monday to fix the benchmark interest rate, experts said RBI may opt for status quo and wait for further easing of inflation.
The 6-member panel headed by RBI Governor Urjit Patel began its two-day deliberations to consider various factors like inflation, credit offtake and the need to propel growth, foreign trade and global economic factors.
Moving away from the usual practice of announcement at 11 am, the fourth bi-monthly monetary policy review would be made public at 2:30 pm on Tuesday after the MPC meeting.Experts are of the opinion that given the price situation, panel is expected to keep rates unchanged to meet the targeted inflation of 4 per cent with the margin of 2 per cent on either side.
“I don’t think the Reserve Bank is going to change rates as inflation readings - based on both WPI and CPI - have not softened much,” Bank of Maharashtra Managing Director and Chief Executive R P Marathe told.
August retail inflation eased to a 5-month low of 5.05 per cent but WPI inflation climbed to a two-year high of 3.74 percent. Before the dip in August, both the retail as well as wholesale price indices were on a continuous upward spiral.
The government had in August notified 4 per cent inflation target with a range of plus/minus 2 per cent for the next five years under the monetary policy framework agreement with the Reserve Bank.
Patel was the one who wrote the inflation targeting path for RBI when he was deputy to former Governor Rajan, and analysts say it is unlikely that he will jettison his guard on price rise, especially under the new inflation targeting framework.
“RBI is unlikely to cut rate this time,” Union Bank of India Chairman and Managing Director Arun Tiwari said.
On his policy expectations from the new Governor, he said Patel may announce “some more measures related to resolution of non-performing assets”.
In a note, it said: “Risks to inflation could emanate from high protein inflation, which has recorded double-digit growth for 14 consecutive months, services inflation, especially in rural areas, which is keeping core inflation high and sticky and surprise pick up in oil prices.”
India Ratings said the sharp fall in retail inflation in August has accentuated the rate cut proposition in the next quarter itself, and termed as ‘achievable’ the RBI’s target of bringing retailinflation down to 5 per cent by March 2017.