The Reserve Bank of India’s (RBI) today released its second bi-monthly monetary policy 2018-19 review.
The key highlights of the policy statement include:
- RBI raises the key repo rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6.25 per cent
- Concurrently, the reverse repo rate adjusted to 6.0per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.50 per cent
- CPI inflation forecast for 2018-19 revised to 4.8-4.9 per cent in the first half and 4.7 per cent in the second half, including the HRA impact.
- Projection for GDP growth for 2018-19 was maintained at 7.4per cent. GDP growth is projected in the range of 7.5-7.6 per cent in first half and 7.3-7.4 per cent in second half.
Here are the views expressed by leading policy analysts on the latest policy statement by the Central Bank.
Khushru Jijina, MD, Piramal Finance & Piramal Housing Finance
“It is a mature & calibrated approach by Monetary Policy Committee to hike policy rates by 25 bps while maintaining a neutral stance during a volatile period. This indicates RBI will remain vigilant on retail price levels in the coming months. RBI’s evaluation and outlook for Indian economic growth is encouraging and looks positive for the economy. Consistently improving manufacturing data, recovery in private capacity utilization and IBC resolutions indicate an imminent revival in private investment activity.
Amongst the reforms announced, an important announcement was made regarding home loans upto INR 35 lakhs being considered as priority sector lending. This would give a boost to affordable housing real estate sector and help in economic growth”.
Dhananjay Sinha – Head Institutional Research, Economist & Strategist at Emkay Global Financial Services Ltd.
“RBI catches up with the market with a 25bp hike; a precursor to a tightening rate cycle. The announcement of 25bp rate hike by RBI today broadly encompasses considerations of upside revision in inflation trajectory going ahead, impact of rising commodity prices and rising global yields, led by tightening of US dollar liquidity. With this hike the RBI has finally reversed the 25bp cut it initiated in Aug’17, while retaining neutral stance, in the aftermath of demonetisation and impact of GST implementation, which led to surplus liquidity condition. Even With this rate hike the stance is still not of tightening. In our view, this rate hike could lead to a tightening stance if the inflation risks accentuate along with currency depreciation.
In our view, before today’s hike, the RBI was already behind the curve as the GSec yield curve, money market curve and implied forward rates from the currency market had been pricing in more than 50bp hike.
Clearly, the risk to rate sensitive sectors, banking NBFC, reality, cap goods, have materialized as expected. We believe as the expectations on future hikes materialize, these risks can become more relevant. The key thing to watch is whether growth recovers strong enough to compensate for rising rates. We maintain our view that fair value for 10 year GSec is at 8.4 per cent.”
Abheek Barua, Chief Economist, HDFC Bank.
“Sensible and cautious response to the risks that have unfolded since the last meeting. This is not likely to be end of the hike cycle as domestic price risks such as MSP hikes and firm global commodity prices would warrant further monetary action.”