RBI to take hawkish stance by end-2018

RBI to take hawkish stance by end-2018

BE/RBI  NOTE/12/2018

The April meeting shortly coming up might induce RBI to keep monetary policy steady, however would result in its aggressive stand by the end of this year.  The interest rates could go up in early 2019, as inflation pressures build, according to a Reuter poll of economists. Further,

  • Between March 23-28, all 61 economists polled, expected RBI to hold the repo rate at 6.00 percent and the reverse Repo Rate at 5.75 per cent at the Policy meeting due to be held on April 4 and 5.
  • This means the rates will be kept steady by RBI during the entire 2018.
  • Last year had seen a slowdown in growth and now Indian market is picking up and has regained its top position as the fastest growing major economy in the last quarter of 2017, surpassing that of China.
  • On the other side, position of Inflation has improved slightly, but is expected to remain ab ove 4 per cent as predicted by the central bank.
  • The RBI is expected to change its stance towards policy tightening by year-end, according to 60 per cent of 33 economists, which includes four respondents, who expected the shift to come up by June meeting.
  • The chances are that RBI would hike the repo rate and the reverse repo rate by 25 basis points in the first three months of 2019, followed by another one in the quarter through to end-December.
  • After hitting a low of 1.46 per cent in June 2017, consumer price inflation steadily rose to a 17-month high in December. However, February’s inflation print showed inflation at 4.4 per cent, bringing some relief to RBI.
  • RBI has projected, that inflation would end up in an average level of 5.1 – 5.6 per cent for the first half of the 2018-19 fiscal year, before adjusting itself to around 4.5 per cent for the remainder of the year.
  • A section of economists feel that against a backdrop of government fiscal slippage, the RBI would focus on “price stability”, higher bond yields and sticky inflation near the upper band of its target, according to

If the RBI raises rates when expected, it would follow other major central banks, which are already tightening policy.  Also, the US Federal Reserve raised rates in March and is expected to follow it up with three more hikes this year, according to a separate Reuters poll.

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