CENTRAL BANK ON INCREASING KEY POLICY RATES

BE/RBI NOTE/18/2018

The crucial Monetary Policy Committee (MPC) is coming up on 4-6 June 2018.  Economists, have predicted with the increased oil prices and an upward trend in the inflation rates, the crucial meeting of MPC on 4-6th June 2018 might come up with a 25 basis points hike in key policy rates.

Risk To Economic Environment

Causes and Effects

  1. If RBI goes for a rate hike, obviously it would prompt an increase in a series of lending rates by banks, which obviously will affect the middle class and dwindle the investment portfolio further.
  2. Goldman Sachs feels that RBI will keep the key rates untouched and take some aggressive steps further.
  3. Rate hike on the other hand would become inevitable, if the oil prices further go up coupled with depreciation in rupee value.
  4. Another important factor that RBI would have to take in to account is Minimum Support Price (MSP) that would be announced by the Government for Summer Crops, Monsoon Outturns and Inflation data.

Past Actions:

  • During April policy RBI had took into account various uncertainties close to the baseline inflation path.
  • The impact of revised formula for minimum support prices (MSP) and staggered implementation of house rent allowance (HRA), Volatility in crude oil prices and rise in input prices, were the factors which were considered during April Policy review.
  • RBI also had projected that inflation would remain between 4.7% and 5.1% during first half of financial year.
  • However, the latest data reveals that the consumer inflation for the month of April which was expected to be 4.41% went up to 4.58% after showing a slow trend during previous three months.
  • Also, the wholesale prices in April touched a four months high figure of 3.18% because of rising crude oil and food prices.

We should wait and see…. Let the MPC meeting come up in June this year…!!!!!!!!!!

Author: Admin Bankedge

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