India cenbank chief says still wary of upside risks to inflation

06 April, 2018, 04:19 | Author: Shannon Aguilar
  • 10 factors that will impact RBI’s decision in first monetary policy review 2018-19

The Reserve Bank of India on Thursday kept the repo rate and the reverse repo rate unchanged at 6% and 5.75%.

The meeting of the six-member monetary policy committee is taking place at a time when the government has stressed that the fiscal deficit and revenue deficit for 2017-18 will be less than the revised estimate of the general budget. "We noted there are several uncertainties around the baseline inflation path which is why we kept the stance neutral and rate unchanged". The main considerations underlying the decision are set out in the statement below.

Chanda Kochhar, ICICI Bank MD and CEO, said: "The significant positive in the monetary policy was the downward revision of inflation projections".

Official data has revealed that retail inflation based on the Consumer Price Index (CPI) in February fell to 4.44 percent, from 5.07 percent in January, but remained outside the RBI medium-term target of 4 percent. The MPC also pared CPI for the second half of FY19 to 4.4 per cent from 4.5-4.6 forecast earlier.

Currently, banks do not charge any commitment fee and do not maintain capital on the undrawn portion of the CC because it is classified as an unconditionally cancellable facility, which does not have any risk weight under the Basel rules.

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Even as RBI has switched growth forecasts from gross value added (GVA) to gross domestic product (GDP) in the interest of global comparability of economic performance, the MPC's expectation that India's GDP growth would improve to 7.4% in fiscal 2019 from 6.6% in fiscal 2018 appears to be highly overstated.

The local media quoted RBI Deputy Governor BP Kanungo as saying that all regulated entities have to cut ties with any individual or businesses dealing with bitcoin or other cryptocurrencies "within three months".

"On balance, we made a decision to remain watchful about the unfolding of these risks as well as the impact on inflation of the forthcoming revision in MSP, second round impact of house rent allowances by various state governments and fiscal slippages", added Mr Patel.

The RBI warned, however, that even as global growth and trade have strengthened, rising trade protectionism and market volatility could derail the global recovery.

Nevertheless, the central bank is unlikely to change its stance on rates for some time as it continues to track incoming data.

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