Mumbai: The RBI is unlikely to change its policy rate in its forthcoming monetary policy meeting next week.
According to experts, the macro-economic factors have slightly improved since the last policy meet with a steep slide in global oil prices and appreciation in the rupee easing concerns about domestic inflation.
“The situation has changed materially since then. Firstly, inflation has been softer than expected and will likely undershoot the RBI’s projections and, secondly, crude oil prices have cooled off 30 per cent. This not only improves inflation outlook, but notably eases the stress on the balance of payments (BoP) and the rupee. In light of this, a rate hike is unwarranted in our view,” said analysts at Edelweiss Financial Services.
The October policy review happened in the background of a severe weakness in the local currency against the dollar and a sharp spike in global oil prices stoking concerns regarding inflation. This drove the RBI to change its policy stance to ‘calibrated tightening’ from ‘Neutral’ even though it left the rates unchanged.
“Indeed, the improved backdrop gives the RBI ample room to ramp up open market purchases to inject durable liquidity in the economy,” Edelweiss Financials added.
According to Suvodeep Rakshit, senior economist at Kotak Institutional Equities, the MPC will likely deliberate on the liquidity (overall and sectoral) issue though it is not under the ambit of the MPC to address these issues completely.
Noting that much of the decline and stability in headline retail inflation has been on the back of food prices which has remained soft due to a combination of structural and cyclical factors, he said, “While we believe that the RBI will likely pause for the rest of FY19 it will likely remain watchful on any upside risks to inflation emanating from global and domestic factors such as minimum support prices, reversal in crude oil prices, volatility in global financial markets, adverse implications from fiscal slippage and staggered impact of HRA increases by states and its second-round impact”.
