RBI monetary policy 2018: Arm yourself with these top 10 points ahead of announcement

Aug 01, 2018, 10:32 AM IST

RBI monetary policy 2018: The Reserve Bank of India (RBI), which will announce its third bi-monthly monetary policy review statement today, may raise interest rates while retaining a neutral policy stance, according to a big majority of analysts. The RBI is expected to strike a balance between rising inflationary pressures and still recovering growth. Ahead of the announcement, disappointing quarterly results pulled the key indices of the Indian equity market lower during the late-morning trade session on Tuesday. Here are 10 key points to know prior to the RBI's policy announcement.


1. If the RBI increases the rates by 25 basis points, it would be the first time since October 2013 that the central bank has hiked borrowing costs at two consecutive policy meetings. Image source: Reuters



2. In June, the repo rate or the benchmark lending rate, was raised for the first time in over four years, by 25 basis points to 6.25 percent. Image source: Reuters


3. Last week, 37 of 63 economists in a Reuters poll said the RBI will raise rates on Wednesday, while 22 said the next hike would come later this year, or early in 2019. "Since the RBI is committed to bringing down inflation, they don`t have a choice but to raise rates," Rupa Rege Nitsure, group chief economist at L&T Finance Holdings, told Reuters. Image source: Reuters


4. India`s annual consumer inflation hit 5 percent in June, the eighth straight month it topped the RBI`s medium-term 4 percent target. Image source: Reuters


5. Global crude oil prices have surged nearly 20 percent this year and crossed $80 a barrel in May, their highest since 2014. This has driven the prices of fuel - the biggest item on India`s import bill - to record highs at a time the rupee is testing new life lows, raising the threat of imported inflation, Reuters said. Image source: Reuters


6. Since monsoons, one of the largest determinants of India's inflation path, have been erratic and patchy in several regions this year, this factor has muddied the outlook for winter-harvested crops and adding to inflationary pressures. Image source: Reuters


7. Still, a sizable numbers of analysts and market participants reportedly believe the RBI could hold off and not hike interest rates, noting that the recovery is nascent and bank credit to corporates is not yet free flowing. Image source: Reuters


8. The monetary policy committee "could afford to do a 'wait and watch' at this juncture and consider more data points before a rate action," Lakshmi Iyer, Kotak Mutual Fund`s chief investment officer debt, told Reuters, adding "There might not be much urgency in delivering back-to-back rate hikes when the policy stance is still neutral." Image source: Reuters


9. Traders reportedly said though the market was largely prepared for a rate hike on Wednesday, yields would still shoot up by 5-10 basis points after one, and the surge would be much more if the RBI also tightens its stance. Image source: Reuters


10. Besides the monetary policy review, investors were also cautious about the upcoming macro-economic data points of Eight Core Industries (ECI) and the fiscal deficit figures. Image source: Reuters