RBI Monetary Policy: Repo, reverse repo rates unchanged at 6.50%, 6.25%##RBI Monetary Policy: Repo, reverse repo rates unchanged at 6.50%, 6.25%
In a surprise move, the Reserve Bank of India kept the repo rate unchanged at 6.50 percent- the rate at which it lends money to commercial banks. The reverse repo rate was also retained at 6.25 percent.
"The decision was consistent with the stance of calibrated tightening of monetary policy in consonance with the objective of achieving the medium-term target for CPI inflation of 4 percent," RBI said in its policy statement on Thursday.
The Monetary Policy Committee (MPC) voted 5:1 in favour of a status quo, with only Chetan Ghate voting for a 0.25 percent hike. Read more
Closely monitoring NBFC to avoid systemic risk, says RBI##Closely monitoring NBFC to avoid systemic risk, says RBI
The Reserve Bank of India (RBI) on Friday said they are closely monitoring the nonbanking financial companies (NBFC) to avoid systemic risk and the regulatory system to monitor the sector remains robust. The government has stepped in timely to stem the crisis at IL&FS and RBI will engage with the new board if necessary to take further resolution steps, said the central bank governor, Urjit Patel, after the monetary policy meeting. Read more
Here’s what experts have to say on RBI keeping policy rates unchanged##Here’s what experts have to say on RBI keeping policy rates unchanged
Sajjid Chinoy, Chief India Economist, JPMorgan:
For the reasons you mentioned, it is a bit surprising, I think it comes down to, we have been saying for a long time that the framework should not change. The RBI should be basing monetary policy where inflation is going to be 2-3 quarters down the line. I guess where our estimates are little bit different is the risk to inflation is to the upside because we have seen this big move in oil prices and the currency, it is undoubtedly the case, food prices I mentioned just before the rate announcement have been unduly benign. But it comes down to where how you forecast inflation. We forecast inflation to be above 5.
Taimur Baig, MD & Chief Economist, DBS Group Research:
I will be blunt, I think it was a mistake. The whole world is going through a major recalibration in terms of monetary policy and India does not live in a vacuum. So the fact that the Fed is raising rates, the fact that emerging market economies are raising, it sort of puts the onus on the Reserve Bank of India (RBI) to also not being left out; that is issue number one. The second issue is given where demand and prices are right now and where the outlook is, it makes sense to remain on the hiking trend. The fact that the rupee has already sold off so much, it does not help the fact that they are taking a pause.
RBI deputy governor Viral Acharaya says that system liquidity remains in surplus mode##RBI deputy governor Viral Acharaya says that system liquidity remains in surplus mode
Viral Acharya, RBI deputy governor said that system liquidity remain in surplus mode till March 2018. It has largely remained neutral in the first half of the year. Acharya also said that the RBI, SEBI and government closely monitoring money market conditions. We will continue to proactively manage the system liquidity to meet demand for reserve money growth, he added. We would urge financial firms to place greater reliance on long-term finance than short term paper.
Highlights from RBI governor Urjit Patel's press conference##Highlights from RBI governor Urjit Patel's press conference
Headwinds from oil price rise amidst supply side disruptions.
Risks emerging from US Fed tightening, escalating tariff wars, spillovers from portfolio rebalancing.
Outlook overcast with downside risks.
Global trade loosing ground due to tariff wars.
MPC observed real GDP surged to a high in Q1 on the back of strong investments and exports.
Observed double digital growth in mfg activity while services moderated from a high base.
IIP accelerated in July 2018.
Retail inflation has eased in July & August except in fuel & light category.
Households reported a sharp uptick in inflation expectations three months ahead.
Inflation expectations for a year ahead have moderated.
Forex reserves of $405 bn enough to finance 10 months of imports.
Exports maintained double digit growth in July & August.
Our forex reserves of USD 405 bn sufficient to support ten months of imports.
Depreciation of rupee has been moderate compared to EME peers.
RBI’s response to these unsettled conditions is to ensure foreign exchange market remains liquid.
Factors influencing RBI’s inflation outlook##Factors influencing RBI’s inflation outlook
Food inflation has remained unusually benign which imparts a downward bias to its trajectory in 2H.
Risk to food inflation from spatially and temporally uneven rainfall is mitigated.
Inflation outlook will be influenced by price of the Indian basket of crude oil .
International financial markets remained volatile with EME currencies depreciating significantly.
HRA effect came off its peak in June and is dissipating gradually on expected lines.
RBI Monetary Policy Committee keeps repo rate unchaged at 6.50%##RBI Monetary Policy Committee keeps repo rate unchaged at 6.50%
The Reserve Bank of India (RBI) on Friday surprised everyone by keeping repo rate unchanged at 6.50 percent and the reverse repo rate at 6.25 percent. The RBI Monetary Policy Committee said its decision is consistent with the stance of calibrated tightening of monetary policy to achieve the medium-term 4 percent CPI target. The CPI inflation has been projected at 4 percent in Q2FY19, 3.9-4.5 percent in H2 and 4.8 percent in Q1FY20.
Sensex, Nifty recover mildly ahead of RBI monetary policy decision##Sensex, Nifty recover mildly ahead of RBI monetary policy decision
The BSE Sensex traded at 34,762.73, lower by 406.43 points, or 1.16 percent, while the NSE Nifty50 was at 10,421.90, down by 177.35 points, or 1.67 percent ahead of the crucial October Monetary Policy Committee meeting today.
Rupee woes, higher crude oil prices weigh on RBI policymakers’ mind ahead of MPC outcome##Rupee woes, higher crude oil prices weigh on RBI policymakers’ mind ahead of MPC outcome
A 25 basis point repo rate hike to 6.75 percent would mean a 75 basis point rise since June, the steepest increase since the last tightening cycle, between September 2013 and January 2014, when India faced its worst currency crisis since the 1990s. A September 19-25 Reuters poll showed 35 of 64 respondents expect a rate hike on Friday. In a July poll, only 11 of 56 projected the rate to be 6.75 percent by December. While a majority of analysts expect a quarter-point raise, some analysts said they would not be surprised if there's a 50 bps increase, given surging oil prices and the rupee's battering. The rupee, which inched towards 74 to the dollar on Thursday, has fallen 13.5 percent in 2018, making it Asia's worst-performing currency. Emerging market central banks including Indonesia, Argentina, Philippines and Turkey have raised rates to contain inflation pressures and currency weakness with the U.S. Federal Reserve set to keep raising rates. (Reuters)
Rate hike will make domestic yields on debt more attractive for foreign investors, curb inflation##Rate hike will make domestic yields on debt more attractive for foreign investors, curb inflation
A rate hike should make domestic yields on debt more attractive for foreign investors and contain inflationary pressures from high crude prices as India imports more than two-thirds of its oil needs. The monetary policy committee will hike interest rates by 25 basis points to battle inflation risks from costly crude oil and the weak rupee as well as "provide assurance about durable liquidity," predicted A. Prasanna, chief economist at ICICI Securities Primary Dealership. "You cannot wish away the depreciation in the rupee if you are a current account deficit country," he said, adding that another reason to hike is so India does not "fall behind the curve in terms of interest rate differential given that central banks globally are raising interest rates." (Reuters)
Rupee weakens further against US dollar on capital outflows; RBI policy in focus##Rupee weakens further against US dollar on capital outflows; RBI policy in focus
Indian rupee rounded out a tough week with further declines in the opening trade on Monday due to overseas fund outflows, triggered by surging US Treasury yields and crude oil prices racing to a four-year high. Read more