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RBI keeps repo rate unchanged at 6% in neutral policy stance, lowers GVA growth forecast to 6.6%

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RBI keeps repo rate unchanged at 6% in neutral policy stance, lowers GVA growth forecast to 6.6%
  • 15:24 (IST)

    Following are key highlights of the RBI's 6th bi-monthly monetary policy statement

    * Key lending rate (repo) unchanged at 6 pc;

    * Reverse repo rate remains at 5.75 pc and marginal standing facility (MSF) rate and Bank Rate at 6.25 pc;

    * Monetary policy's stance neutral;

    * Petrol and diesel prices rose sharply in Jan, reflecting lagged pass-through of past increases in global crude prices;

    * Retail inflation estimated at 5.1 pc in Q4 this fiscal and 5.1-5.6 pc in H1 of FY2018-19;

    * Inflation likely to ease to 4.5-4.6 per cent in H2 of FY19;

    * Gross Value Added (GVA) growth for FY18 seen at 6.6 percent;

    * GVA growth for 2018-19 projected at 7.2 percent;

    * GST stabilising, which augurs well for economic activity;

    * Early signs of revival in investment activity;

    * RBI seeks pick-up in credit growth due to recapitalisation of PSBs and resolution proceedings under IBC

    * Export growth expected to improve further on account of improving global demand;

    * RBI says focus of Union Budget on rural and infrastructure sectors a welcome development;

    * Five members voted in favour of status quo in interest rate; one member voted for increase of 0.25 pc;

    * Next meeting of the MPC on April 4 and 5.

  • 14:50 (IST)

    https://t.co/BRq38Fyypb

    — ANI (@ANI) February 7, 2018

  • 16:31 (IST)

    Continuing with neutral stance will help markets, says Rajni Thakur, Economist, RBL Bank

    MPC decision to hold key rates was on expected lines. It's prudent at this point to not disturb the growth inflation dynamics in response to potential risks. Continuing with neutral stance will help market anchor expectations.

  • 16:30 (IST)

    Policy as per expectations, says Avnish Jain, Head – Fixed Income, Canara Robeco

    The policy was as per expectations with RBI holding rates and maintaining “neutral” stance. The members voted 5-1 in favour of status quo with one member voting for 25 bps hike. The MPC pointed out risks from revised guidelines on MSP calculation, direct impact on inflation from fiscal slippage and indirect impact due to higher rates. The MPC further noted that while oil prices have increased they could potentially soften on supply response to higher rates. The MPC welcomed the Budget focus on rural & infrastructure growth which could potentially improve aggregate demand and support investment activity. The MPC noted that the “..nascent growth needs to be carefully nurtured..”. Overall the policy recognizes that growth is yet to gain strong foothold. With inflation largely within RBI’s range of 2 percent-6 percent, we expect RBI to maintain a prolonged pause.

  • 16:28 (IST)

    Not unduly hawkish, says Bekxy Kuriakose, Head – Fixed Income, Principal Mutual Fund

    As expected RBI kept key rates unchanged and maintained neutral stance. The tone and tenor of the statements continue to sound caution on inflation but is not unduly hawkish. While CPI inflation as per RBI is expected to average 5.1 – 5.6% in H1 of FY 2019, it is expected to come down to 4.5-4.6% in H2 of FY 2019 and therefore remains comfortably in 4+/-2% band. Given the statement and forecasts, we continue to expect RBI to remain on an extended pause barring any unexpected sharp rise in CPI to say beyond 6 percent. We feel the negatives arising out of slippage in fiscal deficit targets post Budget have been factored in by the market. Further rise in US treasury yields, pick up in credit growth leading to lower demand for gilts from banks and sharp rise in crude oil prices can be negatives. We recommend investors to maintain a balanced allocation towards low duration, short term and dynamic categories. The rise in yields in recent months has enhanced portfolio YTMs and provide an attractive entry point for investors.

  • 15:50 (IST)

    'As per market expectations, RBI continued its neutral stance on interest rate'

    Per market expectations, RBI continued its neutral stance on interest rate and kept all the benchmark rates unchanged. Given the high inflation rate, slippages in fiscal discipline and rising crude prices-  this could be the end of a rate-easing cycle. We expect the central bank to monitor the above data closely, for future decisions."

    - Kuntal Sur, Partner & Leader - Risk & Regulatory, PwC India

  • 15:36 (IST)

    'Rising global crude prices and MSP announcement in Budget seem to have influenced RBI'

    Rising global crude prices and the Minimum Support Price announcement in the Budget seem to have influenced the RBI to keep the rates unchanged for the third session in a row. The MSP announcement came at a time when inflation has been accelerating and has topped as high as 5.2 percent in December, which is more than the central bank’s medium-term target.

    With growth picking up, inflation rising and given that fiscal slippages are possible, there does not seem to be much scope for monetary easing. From an NBFC standpoint, we have generally maintained that small rate changes do not have any significant effect on the demand for loans. At Tata Capital, we have seen a 25 percent growth in loan disbursement across various loan categories and hope for a similar growth pattern in the conceivable future.”

    Govind Sankaranarayanan, chief operating officer, retail business & housing finance, Tata Capital

  • 15:33 (IST)

    RBI has tried to maintain fine balance between highs and lows, says Upasna Bhardwaj, economist, Kotak Mahindra Bank

    “I think they have tried to maintain a fine balance between the highs and the lows, its a fairly neutral policy.” 

    “I think they’ve of course highlighted that there are upside risks to the inflation trajectory at this point in time but they are also looking at the possibility of a correction in oil prices ... At the same time they are still suggesting growth is not on a firm footing, but is at a nascent stage.” 

    “Expectations that oil prices will come down and if monsoons don’t surprise negatively, then we do expect the second half is going to see more moderation in inflation after peaking towards 5.6 or 5.8 percenrt in the first half of the calendar year. Keeping that trajectory in mind, we are not looking at a rate hike this year.”

  • 15:19 (IST)

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  • 15:11 (IST)

    Some key highlights from the RBI's press conference where governors are speaking

    We are still awaiting specifics on costing. As more information comes through on which crops will be supported to what extent, we will know the impact. SDF will be just an additional liquidity management. It is still a budget proposal. GST transition made it difficult for MSMEs to meet repayment obligations Sharing of divident is done with govt in a mechanical year. Our fiscal year is July-June 

  • 15:08 (IST)

    MPC has a word of caution for govt as rate cut chances are remote in near future 


    The MPC's decision to keep rates unchanged was expected but what one should take note is the tone of the monetary policy document. Two key developments include changes in inflation and growth forecasts. There were ample caution from Urjit Patel with respect to the upside risks to inflation including the likely impact of fiscal slippage. 

    The RBI has upped the inflation forecast for Q4 to 5.1 percent from 4.3-4.7 percent in the earlier forecast. The MPC expects the inflation to be even higher next year. Also, while the MPC has acknowledged the early signs of revival in the economy, the GVA forecast for FY18 has been revised down to 6.6 percent from 6.7 percent earlier. 


    Even the nascent recovery in growth needs to be carefully nurtured and growth put on a sustainably higher path through conducive and stable macro-financial management, the central bank has warned.  In short, the MPC has taken cautionary stance. This, in turn, means that chances for a rate cut any time in the foreseeable future is unlikely.  

  • 15:05 (IST)

    RBI governor Urjit Patel on inflation 

    We look at inflation projections longer than what is happening in this quarter. Inflation rates are still around 4.5 percent. We felt that at this stage without more data coming in, it was not necessary to change the repo rate or the stance. The decision we took was on the basis of our projections which indicates that inflation has increased in this quarter in 2018-19.

  • 15:03 (IST)

    Fiscal slippage seen this year: Urjit Patel

    There is a confluence of factors and developments which forms the backdrop to this development, says RBI governor. Over the last 6 months, domestic inflation has increased partly due to crude prices. In case of fiscal side we have news of fiscal slippage at 3 levels...fiscal slippage this year, next year compared to what market expected and target and postponement even further.

  • 14:57 (IST)

    RBI always ready to provide liquidity: Urjit Patel 

    RBI remains ready to provide liquidity when needed. There is some stress in MSMEs, data suggests. Seeing improved capital goods production, says RBI governor Urjit Patel

  • 14:55 (IST)

    Sensex, Nifty flat post RBI status-quo

    After the RBI policy announcement, the BSE benchmark trading flat at 34,198.8, up 2.86 points. Nifty50 index of the National Stock Exchange was trading at 10,505.05, up 6.80 points. Rupee is trading at 64.14 against dollar, up 11 paise from the  previous close

  • 14:53 (IST)

    RBI governor Urjit Patel says export growth expected to improve 

    RBI governor Urjit Patel says export growth expected to improve on account of improved global demand.

  • 14:43 (IST)

    RBI sees inflation hardening to 5.1 percent in fourth quarter 

    RBI sees inflation hardening to 5.1 percent in fourth quarter of 2017-18 and further to 5.1-5.6 percent in first half of next fiscal.

  • 14:40 (IST)

    MPC says decision is consistent with the neutral stance of monetary policy 

    MPC says decision is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while supporting growth.

  • 14:39 (IST)

    Fiscal slippage a worry, observes MPC
     

    Fiscal slippage as indicated in the Union Budget could impinge on the inflation outlook. Apart from the direct impact on inflation, fiscal slippage has broader macro-financial implications, notably on economy-wide costs of borrowing which have already started to rise. This may feed into inflation.

  • 14:38 (IST)

    https://t.co/kUvShpFoXG

    — ReserveBankOfIndia (@RBI) February 7, 2018

  • 14:37 (IST)

    MPC gives thumbs up to rural Budget, says economy on recovery path

    The MPC notes that the economy is on a recovery path, including early signs of a revival of investment activity. Global demand is improving, which should help strengthen domestic investment activity. The focus of the Union Budget on the rural and infrastructure sectors is also a welcome development as it would support rural incomes and investment, and in turn provide a further push to aggregate demand and economic activity. On the downside, the deterioration in public finances risks crowding out of private financing and investment. The Committee is of the view that the nascent recovery needs to be carefully nurtured and growth put on a sustainably higher path through conducive and stable macro-financial management.    
     

  • 14:35 (IST)

  • 14:33 (IST)

    MPC votes 5-1 in favour of status quo. Gross Value Added forecast for FY18 brought down to 6.6 percent from 6.7.

  • 14:30 (IST)

    RBI keeps repo rate unchanged at 6 percent

  • 14:27 (IST)

  • 14:23 (IST)

    Sulekha • Now

  • 14:22 (IST)

    RBI has cut repo rates by 200 bps since early 2015 on low inflation

    The RBI has held the repo at 6 percent since a 25 basis points cut in August, having taken advantage of a period of extraordinary low inflation to cut rates by 200 basis points since early 2015.

  • 14:20 (IST)

    The RBI’s policy stance is currently 'neutral'

    "New inflation risks are emerging post-Budget, so it will have to sound hawkish – but not overly so," BNP Paribas told clients on Tuesday, adding it expects two 25-bps rate hikes in 2018’s second half.

  • 14:17 (IST)

  • 14:16 (IST)

    Majority of economists believes RBI will not change repo rate

    A Reuters poll showed 58 of 60 economists expect the repo rate to be kept at 6.00 percent, the lowest since November 2010, and the reverse repo rate at 5.75 percent. The other two predicted a 25 basis points hike.

    But more analysts now believe tightening looms down the road after surging oil and food prices led India’s consumer inflation to a 17-month high of 5.21 percent in December, well above the RBI’s 4 percent target.

    The Reuters poll showed 14 out of 35 analysts believe the RBI will hike rates by the end of 2018, up from 7 out of 27 in December.
     

    Reuters

  • 14:11 (IST)

    Markets on a cautious mood ahead of monetary policy 

    Stock markets are on a cautious mood ahead of the RBI policy announcement. The benchmark Sensex was trading at 34,168.39, a tad down compared with previous close. Nifty, the 50-share index on NSE too was trading near flat at 10.50 hrs. Markets opened on a higher note in the early trade following global cues but shed the gains later. If RBI offers a surprise rate cut, that can give huge thumbs up to the markets. But, going by the trends, chances for this is less.

  • 14:02 (IST)

    Staggered impact of HRA hikes by state governments may push up housing inflation further in 2018: RBI

    The impact of HRA by the Central government is expected to peak in December (2017), RBI had said in its October policy review. The staggered impact of HRA increases by various state governments may push up housing inflation further in 2018, with attendant second order effects. Third, the recent rise in international crude oil prices may sustain, especially on account of the OPEC’s decision to maintain production cuts through next year. 

  • 14:00 (IST)

    There is a risk that this upward trajectory may continue in the near-term: RBI on inflation

    The October bi-monthly statement projected inflation to rise and range between 4.2-4.6 per cent in the second half of this year, including the impact of increase in house rent allowance (HRA) by the Centre. The headline inflation outcomes have evolved broadly in line with projections. Going forward, the inflation path will be influenced by several factors. First, moderation in inflation excluding food and fuel observed in Q1 of 2017-18 has, by and large, reversed. There is a risk that this upward trajectory may continue in the near-term.

  • 13:46 (IST)

    MPC is likely to take a wait and watch mode for now, says Dinesh Unnikrishnan, financial editor, Firstpost

    In December, when the latest CPI print came out, the figure stood at 5.21 percent compared with 4.88 percent in the month ahead. The December print as recorded at a 17-month high. This is well above RBI’s inflation forecast of 4.3 percent -4.7 per cent. The MPC is likely to take a wait and watch mode for now before tinkering with rates. Secondly, the MPC may not be too comfortable with respect to the fiscal situation at this juncture. The government has estimated a higher-than-expected deficit figure of 3.5 percent for the current fiscal year against the 3.2 percent projected earlier.

  • 13:46 (IST)

    UPA 100 percent responsible and nobody else for NPA mess: Narendra Modi

  • 13:40 (IST)

    Entire nation must know NPA mess UPA government created: Narendra Modi

  • 13:37 (IST)

    Farm loan waivers by select states, partial rollback of excise duty may case fiscal slippage: RBI

    The RBI at its last policy meet on 6 December had said that the implementation of farm loan waivers by select states, partial roll back of excise duty and VAT in the case of petroleum products, and decrease in revenue on account of reduction in GST rates for several goods and services may result in fiscal slippage with attendant implications for inflation. 

  • 12:17 (IST)

    RBI policy: From neutral to cautious? 

  • 12:14 (IST)

    RBI monetary policy today: Central bank expected to keep rates on hold

  • 12:12 (IST)

    'India itself is facing an inflation issue; RBI likely to be much more hawkish'

  • 12:10 (IST)

    MPC will be wary of the inflation trajectory over the next six months

  • 12:09 (IST)

    RBI policy decision today amid global market storm

  • 12:07 (IST)

    Rupee up by 8 paise to 64.16 in late morning deals ahead of RBI policy review

    The rupee pared its early sharp gains but was still quoting higher by 8 paise to 64.16 against the US currency in late morning deals on sustained bouts of dollar
    selling from banks and exporters amid higher local equities. The rupee opened sharply higher at 64.12 per dollar as against yesterday's closing level of 64.24 at the inter-bank foreign exchange here.

    PTI

  • 12:05 (IST)

    'Surge in bond yields should be the major concern'

  • 12:04 (IST)

    Sensex edges higher, bonds flat ahead of RBI decision today

  • 12:03 (IST)

    Sensex opens in green on value-buying, climbs 470 points

    The benchmark Sensex rose by over 470 points in opening trade today, breaking its six-session long losing streak on value-buying in select blue-chips by domestic investors triggered by a recovery in global markets. The 30-share BSE index gained 470.39 points, or 1.37 percent, at 34,666.33 in opening trade. Also, the NSE Nifty rose by 115.75 points, or 1.10 percent, to 10,614. All sectoral indices, including realty, metal, consumer durables and banking advanced up to 2.56 percent. The gauge had lost 2,087.31 points in the previous six sessions following a global rout in equities inflicted by inflation worries and imposition of a 10 per cent long-term capital gains tax on equities.

    PTI

The Reserve Bank of India on Wednesday went for a status quo in its sixth bimonthly policy review for 2017-18. The monetary policy committee voted 5-1 in favour of repo rate at 6 percent, which has not been changed since August 2017. The central bank had cut the repo rate by 25 basis points in August 2017. One percentage point is equal to 100 basis points.

Retail inflation crossed the RBI's comfort level and rose to 5.21 percent in December on increase in prices of food items. The retail inflation, based on Consumer Price Index CPI), was 4.88 percent in November. In December 2015, it was 3.41 percent.

A report published in Mint said the central bank was most likely to chose a status quo in its policy statement on Wednesday. The report said 14 out of 15 surveyed economists were of the view that the RBI will not change repo, benchmark lending rate, and keep at 6 percent, according to this Mint report.

AFP image.

AFP image.

The rising crude oil prices have also contributed to the build-up of inflationary pressure. On Tuesday, the rupee fell by 23 paise to hover near one-and-a-half-month low at 64.30 against the US dolar in late morning. Sustained bouts of dollar demand from importers and banks amid sell-off in local equities caused the fall in rupee value.

"It's almost a given that the RBI will hold the repo rate steady when it concludes this week's policy meeting. The upside risks to inflation in the coming quarters suggest that the RBI will have to lift the policy rate eventually, but not just yet, particularly if it does not want to kill the nascent economic recovery," BNP Paribas said in a report on Tuesday, according to PTI.

The 6 and 7 February meet may take up for discussion ongoing sell-off in the government bond market and could also factor in the global markets sentiments.

Last Friday saw the bond market whipsaw, initially selling off on slightly larger-than-expected fiscal slippage, then rallying on hopes that the RBI might buy bonds or expand foreign investor limits, the PTI report said.

(With inputs from PTI)


Published Date: Feb 07, 2018 08:43 AM | Updated Date: Feb 07, 2018 16:00 PM

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