RBI policy updates: Despite the hike, central bank's neutral stance puts it ahead of the curve: Analyst

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RBI policy updates: Despite the hike, central bank's neutral stance puts it ahead of the curve: Analyst
  • 15:03 (IST)

    Highlights of the second bi-monthly monetary statement 

    1. RBI hikes key lending rate (repo) by 0.25 pc to 6.25 pc
    2. Rate hike is the first in four-and-half-years
    3. Reverse repo rate stands at 6 pc, bank rate at 6.50 pc
    4. Growth projection retained at 7.4 pc for 2018-19
    5. Projects retail inflation at 4.8-4.9 pc for April-September, 4.7 pc in H2
    6. Major upside risk to the inflation path as price of crude rose by 12 pc
    7. Volatile crude oil prices adds to uncertainty to the inflation outlook
    8. Investments recovering well; to get boost from swift resolution under IBC
    10. Geo-political risks, financial market volatility, trade protectionism to impact domestic growth
    11. Adherence to budgetary targets by the Centre and states will ease upside risks to the inflation outlook 
    12. All members of the monetary policy committee voted for 0.25 pc rate hike
    13. Next meeting of the MPC on 31 July and 1 August.

    - PTI

  • 16:04 (IST)

    Sensex soars 276 points even as RBI hikes rate

    The BSE Sensex surged almost 276 points to end above the key 35,000-mark today even as the RBI hiked the policy rate by 0.25 per cent on inflation concerns. However, the RBI retained the GDP growth forecast for 2018-19 at 7.4 per cent on hopes of further boost to investments and higher consumption.

    The central bank hiked the benchmark lending rate for the first time in four-and-half-years on inflation concerns arising from a surge in international oil prices. 
    The repo rate now stands at 6.25 per cent. 

    The BSE Sensex, which opened strong at 34,932.49, fell after RBI's policy announcement but soon recovered to touch the day's high of 35,230.54. 
    It finally ended at 35,178.88, up 275.67 points, or 0.79 per cent.  The gauge had lost 419.17 points in the previous three sessions.

    On similar lines, the NSE Nifty, after shuttling between 10,698.35 and 10,587.50, finished the session 91.50 points, or 0.86 per cent higher at 10,684.65.


  • 16:02 (IST)

    'Rate hike is a positive news for the savers in the economy'

    Anita Gandhi, whole time director, Arihant Capital markets, Mumbai

    “The recent hike in crude prices and better GDP for the last quarter of FY18 suggest inflation trajectory may be on the higher side. Though, this may put some pressure on borrowers, it is positive news for the savers in the economy.


  • 16:01 (IST)

    'Central bank sounds upbeat on the growth outlook'

    Shilan Shah, Senior India economist, Capital Economics

    “The rationale behind the rate hike stems largely from the outlook for inflation. In particular, core inflation has surged to a four-year high and the central bank noted several upside risks, including stronger domestic demand and higher inflation expectations.

    “At the same time, however, the central bank sounded upbeat on the growth outlook following the recent run of positive activity data. With growth strengthening and core inflation picking up, we think today’s hike marks the start of a modest tightening cycle.”

    - Reuters

  • 15:59 (IST)

    'Dovish rate hike validates rising inflationary concerns in markets'

    Rajni Thakur, Economist, RBL Bank 

    The “dovish rate hike” decision by monetary policy committee validates rising inflationary concerns in markets. A 25 bps rate hike on back of 30 bps increase in its inflationary forecasts for H2 2018-19, confirms the expectations of durable price pressure in the economy in coming months. While the message on growth revival taking roots remains positive, with continued neutral stance, it has kept its options on further rate action open and will likely stay data dependent

  • 15:58 (IST)

    'Increase in policy rate will delay the revival of the country’s housing market'

    Shishir Baijal, Chairman & Managing Director, Knight Frank India 

    “The RBI’s stance of increasing the policy rate by 25bps is in line with our expectation considering that the crude oil flared inflation level and the interest rates in the broader economy have been marching higher for some time now. However, this increase in policy rate will delay the revival of the country’s housing market, which after suffering a prolonged period of slump has just begun to show early signs of improvement on account of uptick in affordable housing.”

  • 15:57 (IST)

    'Persistent rise in crude oil prices have raised inflationary expectations'

    Rajiv Sabharwal, Managing Director & CEO, Tata Capital

    "An interest rate hike was imminent amid good GDP growth numbers in the fourth quarter of 2017 -18. Uncertainty in global financial markets has also increased since the last policy meeting and FPIs are unwinding their positions. The growing economic concern in the Eurozone has also added to the uncertainty. Persistent rise in crude oil prices have raised inflationary expectations forcing the Reserve Bank of India to increase rates.

    Interest rates on deposits and loans may inch up as we expect further tightening of rates in the coming months. However GDP growth will create more job opportunities fueling the growth of Housing and Consumer loans. As Tata Capital we will work on competitive loan products through innovation in speed, service and processes.’’

  • 15:55 (IST)

    'Rate hike is sensible and cautious response to the risks'

    Abheek Barua, Chief Economist, HDFC Bank.

    "Sensible and cautious response to the risks that have unfolded since the last meeting. This is not likely to be end of the hike cycle as domestic price risks such as MSP hikes and firm global commodity prices would warrant further monetary action."

  • 15:51 (IST)

    'The stock market will now shift its focus towards other factors'

    Vipin Khare, Director - Research, William O'Neil India

    Amid rising crude oil prices and growing inflation concerns, India’s central bank gave in and hiked the repo rate by 25 bps – the first time since January 2014. This also marks the maiden interest rate hike under the NDA government.

    All the six members of the Monetary Policy Committee (MPC) voted in favour of a rate hike citing concerns of higher oil prices, rising inflation and a depreciating rupee. The reverse repo rate was also hiked by 25 bps. The repo and reverse repo rates now stand at 6.25% and 6%, respectively.

    Wednesday’s interest rate decision caught many analysts by surprise, as a majority of them were expecting the bank to maintain status quo. However, the growing difference between repo rate and government bond yields in recent times indicated that a rate hike was around the corner.

    The Indian stock market seemed to have priced in the rate hike, as major indices held onto their gains to snap a three-session losing streak.

    In the near future, the MPC expects inflation to remain below 5% and come around 4.8-4.9% in H1 FY 2018. The second half of the fiscal could see inflation moderating to 4.7%. On the economic growth front, the MPC retained its GDP growth forecast at 7.4% in FY 2019. The apex bank also noted visible improvement in overall investment activity, which could get a further boost from resolution of NPAs in distressed sectors.

    With RBI rate hike done and dusted, the stock market will now shift focus towards other factors such as monsoon rains, domestic currency movement and the trend in global crude oil prices.

  • 15:50 (IST)

    The risk to rate sensitive sectors has materialised as expected

    Dhananjay Sinha- Head Institutional Research, Economist & Strategist at Emkay Global Financial Services on RBI's monetary policy:

    “RBI catches up with the market with a 25bp hike; a precursor to a tightening rate cycle. The announcement of 25bp rate hike by RBI today broadly encompasses considerations of upside revision in inflation trajectory going ahead, impact of rising commodity prices and rising global yields, led by tightening of US dollar liquidity. With this hike the RBI has finally reversed the 25bp cut it initiated in Aug’17, while retaining neutral stance, in the aftermath of demonetisation and impact of GST implementation, which led to surplus liquidity condition. Even With this rate hike the stance is still not of tightening. In our view, this rate hike could lead to a tightening stance if the inflation risks accentuate along with currency depreciation. 

    In our view, before today’s hike, the RBI was already behind the curve as the GSec yield curve, money market curve and implied forward rates from the currency market had been pricing in more than 50bp hike. 

    Clearly, the risk to rate sensitive sectors, banking NBFC, reality, cap goods, has materialized as expected. We believe as the expectations on future hikes materialize, these risks can become more relevant. The key thing to watch is whether growth recovers strong enough to compensate for rising rates. We maintain our view that fair value for 10 year GSec is at 8.4%”.

  • 15:47 (IST)

    'Central bank's neutral stance is good'

    VK Sharma, Head Private Client Group & Capital Market Strategy at HDFC Securities: 

    "The RBI decision to hike rates is  a step in the right direction. The policy is hawkish on inflation but we like the confidence shown in the economy growth. Despite inflationary pressures RBI has stuck to its growth projections and guided for robust investment activities  for FY19. 

    Despite the hike, the stance is still neutral , which is good . This puts RBI ahead of the curve."

  • 15:44 (IST)

    'There remains room for manoeuvrability in policy perspective'

    Anis Chakravarty, Lead Economist and Partner, Deloitte India:  “The Monetary Policy Committee (MPC) presented a balanced view of the emerging market economies (EMEs) and the domestic economy, while alerting on the rising risks from crude prices and the increasing financial market volatility. The RBI was cautious on the factors that could change the course of the underlying optimism, major among them being the projections on oil price movement and rising geopolitical tensions. Keeping these developments in mind and the ensuing external risks, the committee hiked the key interest rate by 25 basis point to 6.25%, after a four year gap. While consumption and investments are expected to remain on an upward tangent, the easing in export orders and equity markets can put a downward pressure on growth. We expect inflation to maintain a northward momentum, especially if oil prices and rupee valuation do not stabilise in a scenario of hardening of domestic consumption. However, given that the committee has maintained a neutral stance, there remains room for manoeuvrability in policy perspective should incoming data show sharp fluctuations.”

  • 15:33 (IST)

    ​Sujan Hajra, chief economist and executive director, Anand Rathi shares and stock brokers, Mumbai 

    "During this calendar year, the Reserve Bank of India is unlikely to do any further rate hikes, and beyond that, it will be extremely data-dependant.

    “With the normal monsoons, we don’t see much upside to oil prices from the current level, and also we expect the industrial production growth to falter after few months of pretty strong growth. We don’t see further strengthening of inflationary forces, but we see some weakening of growth parameters.

    “The RBI has more direct tools if it really wants the rupee to move in a particular direction.

    “Broadly speaking, having delivered a rate hike, the RBI thinks they are in a stable zone. I think for RBI, the outlook will be far more stable.”

    - Reuters

  • 15:19 (IST)

    'Expect one more price hike'

    Tanvee Gupta Jain, chief India eonomist, UBS Securities India Pvt ltd, Mumbai, said: "We were already pricing in a 40 pct probability of a rate hike in this policy, and 50 bps rate hike in FY19. We do expect one more rate hike by the Monetary Police Committee over the next few months, most likely in August, if oil prices continue to remain higher. After incorporating a 50-bps rate hike, and also assuming there will be tax cuts to be announced, we now expect GDP growth at 7.3 pct vs 7.4 pct in FY19.”

    - Reuters

  • 15:18 (IST)

    Rate hike is pre-emptive

    Sumedh Deorukhkar, senior economist, BBVA, Hong Kong said, “Rate hike is pre-emptive and in line with the Reserve Bank of India’s neutral-to-hawkish policy tone. The RBI has sounded more sanguine over growth prospects going forward, while flagging upside risks to inflation, particularly emanating from higher crude oil prices and the wage-price setting process due to closure of output gap.

    “Expect one more rate hike before the end of calendar year 2018 if core inflation remains elevated despite some potential moderation in growth.

    “Growth recovery, although uneven, remains on track. Higher rates will weigh on growth, but only with a lag. Foreign investors remain sanguine over India’s long-term growth story and the credible reform momentum over the recent years. The latest hike underscores RBI’s policy credibility in line with its inflation targeting regime.”

    - Reuters 

  • 15:18 (IST)

    Farm loan waivers

    Urjit Patel said farm loan waivers have been done through budgets of individual state governments, so there is no implications on banks' NPAs. Deputy Governor Vishwanathan says will come out with norms for conversion of urban cooperative banks in to small finance banks.

  • 15:14 (IST)

    Key equity indices surge

    The key Indian equity indices surged as the Reserve Bank of India (RBI) came out with its second bi-monthly monetary policy review where it has decided to raise the repo rate by 25 basis points. The 30-scrip Sensitive Index (Sensex) was trading 229.11 points or 0.66 per cent higher.

    The wider 50-scrip Nifty of the National Stock Exchange (NSE) was also trading 70.35 points or 0.66 per cent higher at 10,663.50 points. The Sensex of the BSE, which opened at 34932.49 points, traded at 35,132.32 points (at 2.48 p.m.), 229.11 points or 0.66 per cent higher from the previous day's close at 34,903.21 points.

  • 15:06 (IST)

    Retail inflation high

    As per official data, retail inflation based on the Consumer Price Index (CPI) rose to 4.58 percent in April, from 4.28 percent in March, but remained outside the RBI's medium-term target of 4 percent

  • 15:04 (IST)

    Webcast of the RBI press conference

  • 15:01 (IST)

    Economic activity in major emerging market economies remains largely resilient, says MPC​

    The Monetary Policy Committee said the Chinese economy maintained a strong momentum in Q1; more recent data on industrial production and PMI suggest that growth is likely to hold steady in Q2. In South Africa, growth prospects have improved with the return of political stability as reflected in consumer confidence, manufacturing PMI and retail sales, said MPC

  • 14:57 (IST)

    RBI Governor Urjit Patel says forecast of normal monsoon for 2018-19 augurs well for agriculture sector

    RBI deputy governor Viral Acharya has said food inflation has remained benign. He said that ime seemed right to raise rates by 25 basis points.

  • 14:53 (IST)

    CPI-based inflation is projected at 4.6 per cent in first half of 2018-19

    Excluding the impact of HRA revisions, CPI-based inflation is projected at 4.6 per cent in first half of 2018-19, and 4.7 per cent in H2, RBI said. 

    “The resulting pick-up in the momentum of inflation excluding food, fuel and HRA has imparted persistence into higher CPI (Consumer Price Inded) projections for 2018-19,” RBI said in the policy. “Crude oil prices have been volatile recently and this imparts considerable uncertainty to the inflation outlook – both on the upside and the downside,” it said. The April policy RBI had projected CPI inflation for 2018-19 to be at 4.7-5.1 per cent in H1 and 4.4 per cent in H2, which included the HR impact for central government employees.
    - PTI

  • 14:50 (IST)

    Urjit patel, RBI governor says financial markets have been driven by MPC expectations

    Emerging market currencies have appreciated against the dollar, said Patel. Both rural and urban consumption remains healthy. Inflationary pressures have been rising in emerging economies, says RBI governor. He said  that cost of farm outputs has risen sequentially. 

  • 14:46 (IST)

    RBI retains GDP growth projection at 7.4 per cent for 2018-19

    The MPC reiterated its commitment to achieving the medium-term target for headline inflation of 4 percent on a durable basis, according to Moneycontrol

  • 14:39 (IST)

    RBI revises retail inflation to 4.8-4.9 percent for the first half

    RBI revises retail inflation estimate for 2018-19 to 4.8-4.9 per cent for first half, 4.7 per cent in H2. 

  • 14:37 (IST)

    RBI says MPC keeps stance neutral despite repo rate hike

    Dr. Chetan Ghate, Dr. Pami Dua, Dr. Ravindra H. Dholakia, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel voted in favour of the hike.

  • 14:35 (IST)

    RBI hikes repo rate by 25 bps to 6.25%

  • 14:29 (IST)

    RBI will release monetary policy statement at 2.30 pm

    The RBI will release its monetary policy statement at 2:30 pm. The top brass will interact with the media at 2:45. Interaction with researchers and analysts through teleconference will be conducted between 5:00 pm and 5:30 pm.

  • 14:21 (IST)

    Data points to RBI taking a hawkish stance

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

    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. 

    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. 


  • 14:12 (IST)

    Markets open higher ahead of RBI meeting 

    The BSE Sensex rebounded over 69 points in opening trade, breaking its three-day losing run, ahead of the RBI's bi-monthly policy meet outcome. The 30-share index recovered by 69.38 points, or 0.19 percent, to 34,972.59. It had lost 419.17 points in the previous three sessions. Sectoral indices led by FMCG, auto, metal, IT and capital goods rose by up to 0.30 percent. The NSE Nifty also went up by 22.65 points, or 0.21 percent, to 10,615.80.

RBI Monetary policy update: The Reserve Bank today marginally revised upwards its inflation projection for the current fiscal on firming crude oil prices in the global market.

On the basis of an assessment of the current and evolving macroeconomic situation at its meeting today, the Monetary Policy Committee (MPC) decided to: increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 percent.

An increasing number of economists expect the Reserve Bank of India (RBI) to raise interest rates on Wednesday, a Reuters poll found, but most still think the central bank will stay on hold and use this week’s meeting to prepare for an August hike.

In a snap poll of 56 economists taken after gross domestic product data on Thursday, 26 of those respondents, or about 46 percent, expect the RBI to take the repo rate higher at the 6 June meeting. The GDP data showed Asia’s third-largest economy grew at its fastest pace in nearly two years in the January-March period.

That compares with 21 of 57 economists, or about 40 percent of them, in a poll taken before the GDP data was published.

“The risk has gone up, definitely, but (we’re) not convinced enough for it to happen in June,” said Kunal Kundu, India economist at Societe Generale. “We still stick to August.”

While most economists in the latest Reuters poll expect the repo rate to remain at 6.00 percent on Wednesday, a majority forecast the RBI to raise it by 25 basis points to 6.25 percent in August.

Representational image. Reuters

Representational image. Reuters

The RBI may use the June meeting to shift its policy communication to an explicit tightening bias away from the neutral bias it has held since February last year.

An unexpected surge in both inflation and economic growth rates, which confirmed India as the fastest-growing major economy, have brought forward expectations for the next rate hike by more than a year.

Just over a month ago, the RBI wasn’t expected to raise rates until the second half of 2019.

India’s benchmark 10-year sovereign bond yields rose to their highest in two weeks to 7.90 percent on Monday on expectations the central bank will have to raise interest rates to keep inflation in check.

But for many, June meeting’s decision is a very close call.

“The consensus is expecting the RBI to keep rates on hold at the upcoming meeting. But a surge in core inflation, looser fiscal policy and rising oil prices are a concern for the MPC (Monetary Policy Committee),” noted Shilan Shah, senior India economist at Capital Economics, who predicts a June hike.

- Reuters

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Updated Date: Jun 06, 2018 16:13:23 IST

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