RBI in wait and watch mode as several risks to inflation continue to exist including a sudden reversal of food prices and oil price volatility.
As FY20 Budget fiscal measures need to be better understood, a reversal of the stance back to neutral will allow MPC flexibility to respond to incoming data.
Probably in August. We can argue whether RBI is dovishly neutral or neutrally dovish but the telltale signs of at least one more rate cut are strewn all over the policy statement, points out Tamal Bandyopadhyay.
The Reserve Bank of India (RBI) on Wednesday announced to increase the policy repo rate by 50 basis points to 4.9 per cent, the second hike in five weeks aimed at quelling the inflation. The MPC vote was unanimous and has decided to keep stance withdrawal from accommodative, RBI Governor Shaktikanta Das said in a press conference on Wednesday. The decision was taken during a three-day meeting of the RBI's Monetary Policy Committee (MPC) to review the interest rates in the country. The MPC voted unanimously to increase the policy repo rate by 50 bps to 4.90 per cent," Das said.
Rating agency Icra on Wednesday said while there is some evidence of the economic recovery becoming broad-based in the third quarter of fiscal 2022, it is yet to attain the durability being sought by the Monetary Policy Committee (MPC) as a precursor to policy transmission. The agency expects the real GDP to expand 6-6.5 per cent year-on-year in the third quarter of FY2022 (+8.4 per cent in Q2 FY2022). It also sees the RBI maintaining the status quo in the upcoming monetary policy review to be held in February.
Heightened geopolitical uncertainties will lead the Reserve Bank's rate-setting panel to opt for a status quo at the next week's meeting, Axis Bank's chief economist Saugata Bhattacharya said on Monday. Bhattacharya said he had earlier expected a tightening action at the policy meet scheduled for April 6-8 but the increased uncertainties on the geopolitical front due to the Russian invasion of Ukraine and its impact on commodity prices makes him now think that RBI will defer such an action. He said the central bank's Monetary Policy Committee (MPC) may hike rates in the second half of FY23 by up to 0.50 per cent.
The banking sector in India is reeling under Rs 8 lakh crore of non performing assets (NPAs) or bad loans, of which PSU banks alone account for over Rs 6 lakh crore.
Concerned over elevated inflation, Reserve Bank of India on Friday decided to leave the benchmark interest rate unchanged at 4 per cent but maintained an accommodative stance, implying more rate cuts in the future if need arises to support the economy hit by the Covid-19 pandemic.
The central bank's next monetary policy review is scheduled for April 5. It had kept the policy rate unchanged in its February meeting on fears of inflation.
As he projected a grim outlook for the economy, RBI Governor said that amidst this encircling gloom, agriculture and allied activities have provided a beacon of hope on the back of an increase of 3.7 per cent in foodgrains production to a new record.
Pressure has been mounting on the Reserve Bank of India to cut interest rates in the wake of declining retail inflation and the need to fuel growth momentum. However, the RBI will have to do a tightrope walk as globally interest rates are inching upwards.
India is much better placed today to deal with future waves of the pandemic relative to the first wave, RBI deputy governor Michael Patra said.
"Finance Ministry and RBI keep talking all the time," Rajan said.
India's economic growth is estimated to have slowed down to 11-year low of 5 per cent during the current financial year ending March 2020.
With the 115 bps reduction in repo rate beginning February, banks have already transmitted 72 bps to the customers on fresh loans and some large banks have transmitted as much as 85 basis points.
The Reserve Bank on Friday retained the real GDP growth projection at 9.5 per cent for 2021-22 as domestic economic activity has started normalising with the ebbing of the second wave of the virus and the phased reopening of the economy. In the June monetary policy, the RBI had lowered the growth projection for 2021-22 to 9.5 per cent from 10.5 per cent estimated earlier. Unveiling the bi-monthly monetary policy, RBI Governor Shaktikanta Dad said high-frequency indicators suggest that consumption (both private and government); investment; and external demand are all on the path of regaining traction.
Probably 35 bps. There could be even an encore in February 2023 to take the policy rate to 6.5% before the financial year ends, predicts Tamal Bandyopadhyay.
'The no-rate cut policy and preference to wait for the Budget and clarity on the fiscal front demonstrate RBI Governor Shaktikanta Das is maturing in his new role,' notes Tamal Bandyopadhyay.
One incident should not be used to generalise the health of all cooperative banks, says RBI governor Shaktikanta Das.
The government hopes the latest action will lead to banks also lowering the cost of borrowing for corporate and individual borrowers.
Bajaj Finance was the top laggard in the Sensex pack, plunging around 6 per cent, followed by IndusInd Bank, SBI, M&M, Axis Bank, Bajaj Auto and ICICI Bank. NSE Nifty sank 229.55 points to 14,637.80.
GST rate cut for real-estate, income transfer scheme, farm loan waivers execution and recapitalisation of PSU banks have the potential to boost India's growth in a few months, says Neelkanth Mishra.
Achieving inflation target of 4 per cent, recovery after remonetisation and hardening profile of oil prices are some of the risks which the RBI is watching closely, says Gaurav Kapur.
All-out efforts are needed to mitigate the adverse impact of the Covid-19 pandemic, and the RBI will use any instrument necessary to revive growth and preserve financial stability, according to the minutes of the central bank's policy meeting.
Chances of a rate cut in April improve if core inflation continues to ease, growth falling below the projected 7.2% for FY19 and if the global trade slowdown exacerbates.
Nestle India was the top laggard in the Sensex pack, shedding around 2 per cent, followed by SBI, HDFC Bank, Axis Bank, ICICI Bank, Reliance Industries, HUL and Dr Reddy's. NSE Nifty slipped 20.10 points to 15,670.25.
This is the fifth straight cut in rates by the Reserve Bank of India in as much policy reviews in 2019, and takes the total quantum of reductions to 1.35 per cent.
This time the all-powerful interest-rate setting panel, whose constitution was notified by the government on Thursday, will take call on interest rate. But that's not the only change. The Reserve Bank of India has also decided to change the timing of announcement of its policy review, due next Tuesday, to mid-afternoon.
Retail inflation inched up to 4.48 per cent in October due to an uptick in food prices, government data showed on Friday. The Consumer Price Index (CPI) based inflation was at 4.35 per cent in September and 7.61 per cent in October 2020.
The supply-side driven inflationary pressures, from food or fuel prices, would be mitigated by a neutral stance and a prolonged pause on rates, says Gaurav Kapur.
India's manufacturing sector activities witnessed the strongest rate of growth in three months in July amid improved demand conditions and easing of some local COVID-19 restrictions, a monthly survey said on Monday. The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI) rose from 48.1 in June to 55.3 in July, pointing to the strongest rate of growth in three months. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.
The wholesale price-based inflation accelerated to a record high of 12.94 per cent in May, on rising prices of crude oil and manufactured goods. Low base effect also contributed to the spike in WPI inflation in May 2021. In May 2020, WPI inflation was at (-) 3.37 per cent. This is the fifth straight month of uptick seen in the wholesale price index (WPI)-based inflation. In April, 2021, WPI inflation hit double digit at 10.49 per cent. "The annual rate of inflation, based on monthly WPI, was 12.94 per cent for the month of May, 2021 (over May, 2020) as compared to (-) 3.37 per cent in May 2020.
Chetan Ghate, Pami Dua and Ravindra Dholakia have been appointed for 4 years
Patra, as executive director of the central bank, was the principal advisor to the Monetary Policy Department since July 2012.
The statement, issued after the 2-day meeting of the 6-member Monetary Policy Committee of the Reserve Bank of India, also said that recapitalisation of public sector banks along with resolution of stressed assets under the Insolvency and Bankruptcy Code (IBC) will create demand for fresh investments.
India's services sector remained in contraction territory for the third straight month in July, as business activity, new orders and employment declined further largely due to the COVID-19 pandemic and local restrictions, a monthly survey said on Wednesday. The seasonally adjusted India Services Business Activity Index rose from 41.2 in June to 45.4 in July, but was stuck in the red due to subdued demand conditions amid the COVID-19 crisis. In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.
Titan was the top gainer in the Sensex pack, climbing over 4 per cent, followed by Bajaj Auto, Maruti, Reliance Industries, ONGC and UltraTech Cement.
Subdued prices of food items like vegetables pulled down retail inflation for the third month in a row to 5.3 per cent in August, within the RBI's comfort zone. While the Consumer Price Index (CPI)-based retail inflation declined to 5.3 per cent in August from 6.69 per cent in the same month a year ago, food inflation dipped at a much faster pace to 3.11 per cent from 9.05 per cent in August 2020. The food inflation was also lower than 3.96 per cent in preceding month of July.
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Declining prices of food items like vegetables pulled down retail inflation to 5.59 per cent in July, bringing it back within the RBI's comfort zone after two months, official data showed on Thursday. The retail inflation based on the Consumer Price Index (CPI) had remained above 6 per cent during May and June. The government has mandated the RBI to maintain retail inflation at 4 per cent, with a margin of 2 per cent on either side. The CPI based inflation stood at 6.26 per cent in June 2021 and 6.73 per cent in July 2020.
Market participants must appreciate that staying cautious is a virtue for central bankers and should not expect a sudden reversal in the formal monetary policy stance.
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