The central bank has maintained the status quo on its repo rate since August 2017, citing concerns about inflation.
The Reserve Bank of India's Monetary Policy Committee (MPC) is meeting for its second bi-monthly policy review in FY19. This is the first time the committee is meeting for three days instead of the regular two days.
Some experts expect the MPC to revise the benchmark repo rate upwards. Repo rate is the rate at which banks borrow short-term funds from the RBI.
Here are 6 things to watch out for in Wednesday's monetary policy announcement:
Change of stance
Observers feel that the MPC may shift its stance on liquidity to hawkish from being neutral earlier. This could be in preparation for a hike in August, if rates are not hiked on Wednesday.
Experts are expecting a higher probability of key repo rate remaining unchanged at 6.00 percent, and a shift in stance from 'neutral' currently to 'withdrawal of accommodation' by the MPC.
The central bank has maintained the status quo on its repo rate since August 2017, citing concerns about inflation.
GDP growth
The Indian economy grew at 7.7 percent in the January-March quarter and helped India retain the tag of the world's fastest-growing economy. In its previous meeting, the committee had noted that the economy was expected to grow at faster pace in FY19 due to several factors.
Inflation
RBI's commentary on inflation will be watched closely on Wednesday. Observers are expecting the central bank to revise consumer inflation projections.
View on rising fuel prices
The MPC is expected to talk about the escalating prices of petrol and diesel, caused by the global increase in crude oil prices.
MPC voting pattern
In April, the RBI Deputy Governor Viral Acharya had indicated that he would vote to withdraw monetary accommodation in the next policy. Michael Patra had voted in favour of raising the repo rate.
The others had overruled Patra by voting to maintain the status quo. It would be interesting to see how the MPC members vote on Wednesday.
Views on US Fed rates
RBI Governor Urjit Patel said on Monday that the US Fed should reduce the pace at which it is unwinding its balance sheet, in order to limit the impact of a shortage of the dollar in emerging markets.
Patel said that the Fed should carefully adjust the pace, keeping in view evolving macroeconomic conditions.
The committee's observations on the US Fed's decisions on interest rates will be another thing to watch out for in Wednesday's policy announcement.
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