RBI Monetary Policy: Will Shaktikanta Das cut rates in his first review meeting?
The reserve bank is not expected to cut on interest rates due to rising crude prices and fiscal issues. Sr. Research Analyst Avinash Gorakssakar told Zee Business Online, ''The result of MPC meeting will be 50-50 on the revision of rates. For any changes to rates, the RBI will wait for full budget to be presented.''
The RBI's bimonthly meeting of the Monetary Policy Committee (MPC) will be held from 5th February to 7th February. Experts believe that the central bank's MPC is likely to change its policy stance to neutral in this meeting. The reserve bank is not expected to cut on interest rates due to rising crude prices and fiscal issues. Sr. Research Analyst Avinash Gorakssakar told Zee Business Online, ''The result of MPC meeting will be 50-50 on the revision of rates. For any changes to rates, the RBI will wait for full budget to be presented.''
The retail inflation is measured by the Consumer Price Index (CPI) and it has been driving constantly down from the promised 4 per cent inflation target for the last five months. The present scenario gives RBI a freedom to change the policy stance and a rate cut. The upside revision in the fiscal deficit target for the financial year 2019 may give room to change the current policy stance to neutral.
The Reserve Bank of India (RBI) is likely to not disturb the policy repo rate due to concerns on weak fiscal numbers in FY19, in order to align the expenditure proposals announced in the interim Budget. However, the Central bank may make changes to its monetary policy stance from the ‘calibrated tightening’ to the ‘neutral’ one.
"RBI's commentary on 7th of February will be crucial for the further movement in the markets. It will be an interesting thing to see that how central bank will take on the prevailing interest rates in this MPC amid stable crude prices,'' mentioned Gorakssakar.
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Previously, the central bank had changed the policy repo rate from 6 per cent to 6.25 per cent in the June monetary policy meet and from 6.25 per cent to 6.50 per cent in August meet.
Earlier, in December 2018, retail inflation was at the 18-month low of 2.19 per cent. Finance Minister Piyush Goyal, revised the fiscal deficit for FY19 from 3.3 per cent of GDP to 3.4 per cent in the interim Budget on February 1. The government set the targets keeping in mind the fears of higher borrowings and pressure on interest rates.
''As of now, an investor should wait for the elections before making entry or fresh capital infusement to market. Full budget from the new government will be crucial to watch out,'' explained Gorakssakar.
While the fiscal deficit target for FY20 has been set at 3.4 per cent of GDP in the interim Budget against 3.1 per cent shown in the Fiscal Responsibility and Budget Management (FRBM) Act. The RBI is likely to wait until the full Budget is announced in July to know the suitable solutions for the current fiscal situation.
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