RBIs bi-monthly monetary policy: Instead of a rate cut, analysts expect these changes
RBI is set to announce second bi-monthly monetary policy statement on June 07.Analysts expects the central bank to once again keep repo rate unchanged but sees changes in its economic stance.
Reserve Bank of India (RBI) governor Urjit Patel along with Monetary Policy Committee (MPC) is set to present the second-bi monthly policy for financial year 2017-18 on afternoon of June 7, 2017.
Many analysts expect a status quo on policy rate with a widening in liquidity corridor.
Maintaining its policy stance, RBI kept repo rate unchanged followed by a 25 basis point hike in reverse repo rate at 6% from its previous 5.75% in April monetary policy.
India's inflation data has been softer than expected, stronger INR against US dollar, softer global commodity prices, fading of El Nino risks, Q4FY17 GDP data to a two-year low, credit growth and capex related indicators exhibiting sustained sluggishness and India’s Balance of Payment dynamics has been comfortable.
Consumer Price Index (CPI) Inflation has cooled sharply recently to 2.99% Year-on-Year (YoY) in April from an average of 4.5% YoY in FY2017, largely on the back of paring of food and core inflation.
State Bank of India (SBI) said, “A widening of the corridor or a signal on the Standing Deposit Facility (SDF) will be a well thought and pragmatic move to push the yields down and ensure monetary policy transmission against the backdrop of significant liquidity overhang in the system.”
Net absorption of liquidity from banking system has been declining and is at Rs 57,300 crore by end of May 2017 compared to Rs 1,06,700 crore in April 2017 and Rs 1,84,000 crore in March 2017.
As on June 02, 2017, reverse repo flows stands at Rs 402,612 crores. Care Ratings said, "Therefore, a decrease in Cash Reserve Ratio (CRR) from the current level of 4% seems unlikely."
Also, money circulated in the economy has increased but has not reached the levels of pre-demonetization. In fact, it has declined by 14% to Rs 14.07 lakh crore in April 2017 as compared to Rs 16.48 lakh crore in the corresponding period last year.
ICICI Bank said, "We expect some liquidity management measures to be announced in the August policy, if not in the upcoming one."
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