RBI policy as it happened: Rate kept unchanged at 6%, GVA growth estimate for FY18 cut to 6.7%

Polcy rate unchanged at 6%, GVA growth estimate for FY18 cut to 6.7%

Following are the highlights of the fourth bi-monthly Monetary Policy Statement 2017-18, issued by Reserve Bank of India:

1) Key policy rate kept unchanged at 6 percent.

2) Cuts economic growth forecast to 6.7% from 7.3% for FY'18

3) Projects inflation at 4.2-4.6 pc in the second half.

4) GST implementation rendered prospects for the manufacturing sector uncertain in the short term, says RBI.

5) Recent structural reforms improving business environment, transparency and increasing formalisation of the economy.

PTI

Keeping rate unchanged a calculated decision, says Tata Capital

“Post the RBI’s previous policy stance to reduce the repo rate by 25 basis points, retail inflation has seen an increase and reached around 3.36% in August, its highest point in the last 3 months. This coupled with recent trends in the global economy – spike in crude oil and the weakening of the rupee has forced the RBI to take a calculated decision to keep the rate unchanged. However, from an NBFC standpoint, the unchanged rate will have a minimal effect on the home loan, auto loan and white goods sector, the demand for which have remained steady and are expected to grow over the next two months as the festival season continues. We are expecting a 25-30% increase in personal loan disbursement for the current quarter compared to last year,” said Govind Sankaranarayanan, chief operating officer – retail business & housing finance, Tata Capital, in a statement.

Markets flat after status quo on interest rate

The financial markets remained more or less unchanged after the status quo on the interest rate by the SBI.

At 3:17 pm, the Sensex was at 31,661.79, up 164.41 points or 0.52%, and the Nifty at 9908.50 up 49.0 or 0.50% at 3:17 pm.

Status quo on interest rate not unanimous decision; Ravindra Dholakia voted for 25 bps cut

The Monetary Policy Committee's decision on interest rate was not unanimous.

Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral V Acharya and Urjit R Patel were in favour of the status quo, while Ravindra H Dholakia voted for a policy rate reduction of at least 25 basis points.

Growth slowdown to 5.7% giving rise to a lively debate, says deputy governor

Loss of growth has given rise to a lively debate, said RBI deputy governor Viral Acharya.

He seems to be alluding to the recent war of articles between supporters of the government and those against.

Yashwant Sinha, former finance minister and senior BJP leader, recenlty wrote an article in The Indian Express accusing finance minister Arun Jaitley of mismanaging the economy. 

This was followed by many experts analysing the reasons for the growth slowdown to 5.7 percent in April-June.

From kharif uncertainty to crude prices, why is inflation target raised

The central bank has listed out the reasons for the raising the inflation forecast:
 

"First, the assessment of food prices going forward is largely favourable, though the first advance estimates of kharif production pose some uncertainty. Early indicators show that prices of pulses which had declined significantly to undershoot trend levels in recent months, have now begun to stabilise. Second, some price revisions pending the goods and services tax (GST) implementation have been taking place. Third, there has been a broad-based increase in CPI inflation excluding food and fuel. Finally, international crude prices, which had started rising from early July, have firmed up further in September," the RBI said in the statement.

For common man, a rough ride ahead; inflation seen up, growth seen down

The common man will have to tighten his seatbelt for a rough ride ahead. At least that is what the RBI statement is showing.

The central bank cut the GVA growth projection for the current year to 6.7 percent from 7.3 percent earlier. 

It also raised the inflation forecast to 4.2-4.6 percent for the second half of the year.

"...Inflation is expected to rise from its current level and range between 4.2-4.6 per cent in the second half of this year, including the house rent allowance by the Centre," the RBI said.

Central bank paints a bleak picture on growth scenario, takes GST impact into account

The RBI lists out the reasons for the growth proejection cut.

"...The loss of momentum in Q1 of 2017-18 and the first advance estimates of kharif foodgrains production are early setbacks that impart a downside to the outlook. The implementation of the GST so far also appears to have had an adverse impact, rendering prospects for the manufacturing sector uncertain in the short term. This may further delay the revival of investment activity, which is already hampered by stressed balance sheets of banks and corporates. Consumer confidence and overall business assessment of the manufacturing and services sectors surveyed by the Reserve Bank weakened in Q2 of 2017-18; on the positive side, firms expect a significant improvement in business sentiment in Q3. Taking into account the above factors, the projection of real GVA growth for 2017-18 has been revised down to 6.7 per cent from the August 2017 projection of 7.3 per cent, with risks evenly balance," the RBI statement says.

Rate kept unchanged; growth estimate cut to 6.7%

The RBI kept the policy rate steady at 6 percent but the GDP growth projection sharply to 6.7 percent. 

Earlier the projection was the economy will growth at a 7.3 percent.

With the growth rate cut and status quo on interest rate, the pressure from the government officials on the central bank is only likely to heighten.

Rate cut on not, the GDP growth projection is likely to be cut

The pressure on the central bank to cut rate has heightened ever since former finance minister and senior BJP leader Yashwant Sinha wrote in an article that the economy may not revive before 2019.

“...The committee is under pressure to ease rates in midst of slowing growth,” said Radhi Rao of DBS in a note.

“Elsewhere, the growth outlook has deteriorated since the August review, with Jun quarter GDP down to a three-year low. This will necessitate a downward revision in the central bank’s gross value added (GVA) projection at 7.3 percent,” Rao said.