RBI keeps its key rates unchanged

RBI keeps its key rates unchanged

"The main considerations underlying the decision are set out in the statement below", the Central bank said in its statement.

Policymakers reiterated that they are committed to keep headline inflation close to 4 percent. There is need for vigilance around the evolving inflation scenario in the coming months.

Inflation is expected to accelerate further after the government's budget last week widened its fiscal deficit target for the fiscal year starting in April to help finance a sharp increase in spending on rural areas and health-care. Michael Patra voted for a rise in the policy rate by 25 basis points.

"The monetary policy was far less hawkish than expectations, implying that unless things go really awry and push inflation way above the projected trajectory, the RBI could stay on hold", Abheek Barua of HDFC Bank said. In terms of the fiscal, it acknowledged the downward glide path over the last few years, and also highlighted the negative macro financial implications of fiscal slippages. "This may feed into inflation", RBI said. "For now, we expect a prolonged pause on monetary policy including at the upcoming February 7 policy meeting, although the RBI may flag upside risks to inflation", Nomura group said in a note. "This may feed into inflation", it warned. The Reuters poll showed 14 out of 35 analysts believe the RBI will hike rates by the end of 2018, up from seven out of 27 in December.

Bank of England Governor Mark Carney speaks during the central bank's quarterly inflation report press conference in the City of London
Video Carney Economy set to exceed its speed limit

Reacting to the claims made by the earlier RBI reports, the All India railwaymen Federation chief Shiv Gopal Mishra, who has been leading the 7 Pay Commission negotiations with Centre, had said, "The assessment of RBI in this regard is flawed". Post the announcement, RBI governor Urjit Patel addressed a press conference and shed light on the inflation risks that looms over the economy of the country. The Union Budget 2018 proposal of increasing minimum support prices (MSP) to 1.5 times the input costs has also weighed on the minds of the MPC members, since the inflationary impact of such a move can hardly be underscored.

On the economic growth front, there has been some improvement as the effects of the twin blows of demonetisation and GST implementation are waning.

The so-called Super Thursday release of data from the Bank is likely to see it revise up growth forecasts, with JP Morgan pencilling in a rise from 1.6% to 1.9% in 2018 and a nudge up to 1.8% in 2019.

RBI has two challenges to tackle with, one is the transmission of lower interest rates in the economy through banking system so that growth can be incubated at this juncture and second is to protect economy from global interest rates tightening started by USA. The central bank hiked the inflation projection for the January-March quarter to 5.1 per cent from 4.7 per cent in the third quarter.




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