RBI may not go for a rate cut in 2018-19 monetary policy reviews as retail inflation shows rising trend: UBS report
As per Central Statistics Office (CSO) data, retail inflation measured in term of Consumer Price Index fell to a four-month low of 4.44 percent in February.
New Delhi: CPI inflation is expected to rise over the next few months and average close to 4.7 percent in 2018-19, driving Reserve Bank of India (RBI) to keep key policy rates on hold in the coming financial year, says a report.
According to Swiss brokerage firm UBS, the headline CPI inflation may average close to 4.7 percent in 2018-19 (as against 3.6 percent estimated in 2017-18).
"In our base case, we still expect the Monetary Policy Committee (MPC) to keep rates on hold in 2018-19," the report authored by Tanvee Gupta Jain, Economist at UBS Securities India, said.
Jain however noted that there might be a pre-emptive 50 bps hike over the next 12 months to ensure macro stability.
As per the report, the key risks to the base case CPI inflation forecast include higher minimum support prices (MSPs), global crude oil prices strengthening further and populist spending in the run-up to 2019 general election.
If these risks materialise, "We do not rule out a pre-emptive 50 bps hike over the next 12 months to ensure macro stability risks are contained," Jain added.
As per Central Statistics Office (CSO) data, retail inflation measured in term of Consumer Price Index fell to a four-month low of 4.44 percent in February on cheaper food articles and lower cost for fuel.
Retail inflation was 5.07 percent in January. In February 2017, however, it was 3.65 percent. Following the easing of retail inflation in February, there is industry clamour for a rate cut by RBI next month to maintain growth momentum.
The central bank's next monetary policy review is scheduled for 5 April. It had kept the policy rate unchanged in its February meeting on fears of inflation.
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RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to historic low.
The RBI governor said preserving long-term stability of the financial system is the key to recovery of economic growth
Jagdishan, a chartered accountant by profession, is a science graduate and has a Master's degree in Economics of Money, Banking and Finance. He has over 29 years of experience in the banking industry