Data points to RBI taking a hawkish stance this week

Views: 35

Mumbai, June 4 (IANS) The RBI’s Monetary Policy Committee (MPC) meeting to decide on its second policy review of the fiscal got underway here on Monday to enable deliberations on interest rates the first time over a longer period of three days in the backdrop of surging global oil prices and higher domestic inflation.

In a notice issued in mid-May, the Reserve Bank of India (RBI) announced that this extraordinary extension of the MPC meeting due to “administrative exigencies” was one-off and there are no changes to the two-day meeting schedule for the rest of the fiscal.

At its last bi-monthly monetary policy review in April, while holding its repo, or short term lending rate for banks, at 6 per cent for the fourth time in succession, the MPC had signalled the prospect of a more hawkish stance on interest rates.

ALSO READ:   Boy dies while taking selfie with train

While the central bank continued with its ‘neutral’ stance, the released minutes of the MPC meeting showed that RBI Deputy Governor Viral Acharya is likely to vote for “withdrawal of accommodation” at the MPC meeting this time.

“Since the last MPC meeting, I have moved substantially closer to switching from the neutral stance to beginning the process of withdrawal of accommodation. This is in spite of the softening of inflation in recent prints,” said Acharya as per the minutes.

“I view the (Inflation) risks as tilted significantly to the upside given the continuing rise in the ex-food-and-fuel inflation. Besides oil prices, my another primary concern is the risk of fiscal slippages, at both the Centre and state levels.

While the MPC may not by majority vote for a rate hike on Wednesday, recent data is fuelling fears of the RBI shifting to a hawkish stance.

ALSO READ:   Sensex extends to end 460 points up, Nifty above 10,400-mark

The country’s retail inflation rose to 4.58 per cent in April from a rise of 4.28 per cent in March and 2.99 per cent in the corresponding period of the previous year. It has been quite some months outside the RBI’s median target of 4 per cent.

The Consumer Food Price Index in April was at 2.80 per cent and at a rate much higher than the 0.61 per cent rise during the same month last year.

The fourth quarter estimate of Gross Domestic Product (GDP) released by the Central Statistics Office estimated the growth rate at 7.7 per cent, as against 5.6 per cent, 6.3 per cent and 7 per cent respectively in the first three quarters.

“Given the higher GDP growth rate released last week, the chances of a policy rate hike has risen, though not assured, as RBI would take a wait-and-watch approach,” according to Devendra Nevgi, Founder and Principal Partner, Delta Global Partners.

ALSO READ:   Sensex gains nearly 200 points; telecom stocks rise

According to RBI Governor Urjit Patel at the April meeting, the inflation outlook faces several uncertainties emanating from the increase in minimum support prices for kharif crops, volatile crude oil prices, “the staggered impact of revision in HRA by various state governments, fiscal slippages by the Centre and the states and the performance of the monsoon”.

In a repeat of the previous policy review in February, five members of the MPC, including the three external ones and the Governor, voted in favour of the decision, while RBI Executive Director Michael Patra voted for an increase in the repo rate by 25 basis points.

–IANS

bc/him/

Comments: 0

Your email address will not be published. Required fields are marked with *