RBI panel to brainstorm rate hike for 3 days

Mumbai: Hardening domestic fuel prices are likely to weigh on the Reserve Bank’s rate-setting panel, Monetary Policy Committee (MPC), at its three-day meeting beginning here tomorrow to decide the key policy rate. This is the first time that the MPC will meet for three days due to “administrative exigencies”.
The seven-quarter high growth rate of 7.7% in January-March 2018 and forecast of a normal monsoon has reduced the clamour for a cut in the benchmark lending rate by the Reserve Bank of India.


Retail inflation (CPI), a key data for the RBI, has remained above 4% since November 2017. The government has mandated the RBI to restrict the retail inflation at 4% (with a margin of +/- 2%) while supporting growth.

The RBI has refrained from revising the repo rate since August 2017 citing inflationary concerns.

Indicating hardening of the interest rate scenario, several major lenders including SBI, PNB and ICICI Bank have already raised their lending rates from 1 June. Some of the banks have also increased the deposit rates.

At the 4-5 April MPC meeting, RBI Deputy Governor and member Viral Acharya had cited revival in investment activity and an improvement in capacity utilisation for his switch from a neutral stance to shift “decisively to vote for a beginning of the withdrawal of accommodation in the next monetary policy meeting in June.”

A majority of the six-member panel had flagged upside risks to inflation as it kept the benchmark repurchase rate unchanged at 6%.

The MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Act 2016. The first meeting of the MPC was held in October 2016. Prior to setting up of the MPC, the RBI Governor used to decide the interest rate.

The MPC, headed by RBI Governor Urjit Patel, will for the first time meet for three days as against the usual two.

The resolution of the second bi-monthly monetary policy meeting for the current fiscal will be announced in the afternoon of 6 June.

Another member Michael Patra had voted for a hike in repo rate but was overruled by a majority that opted for status-quo.

Currently, the repo rate the short-term lending rate at which RBI lends to banks stands at 6%. Consequently, the reverse repo rate is 5.75% and the marginal standing facility (MSF) rate and the bank rate stood at 6.25%.

However, the expected rebound in the average CPI inflation for 2018-19, in conjunction with the higher-than-anticipated GDP expansion in Q4 of last fiscal, suggests that a back-ended rate hike cannot be ruled out, which is likely to be reflected in the tone of the policy document, he added.

Reversing the declining trend of three months, retail inflation inched up to 4.58% in April.

Sirf News Network

By Sirf News Network