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RBI to hold fire in December 5 policy, says CNBC-TV18 poll

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The Reserve Bank of India is likely to keep interest rates unchanged on Wednesday, according to economists, brokerages, treasury heads and bankers polled by CNBC-TV18. They expect the monetary policy committee to remain in a wait and watch mode, while maintaining its ‘calibrated tightening’ stance.

RBI to hold fire in December 5 policy, says CNBC-TV18 poll
In the two months since Reserve Bank of India’s (RBI) last Monetary Policy Committee (MPC) meeting in early October, a lot has changed.
Amid a sharp rise in international crude oil prices, a strengthening US dollar putting pressure on emerging market currencies, rise in bond yields across major economies and escalating trade tensions between the world’s largest economies, the ‘inflation targeting’ central bank took the market by surprise by leaving the policy rate unchanged, but altered the stance of the policy to ‘calibrated tightening’ form neutral, in a 5-1 vote.
Two months later, crude prices have slipped below $61/barrel, the India rupee is back at 70 against the US dollar, and retail inflation has eased to a 13-month low of 3.31 percent for the month of October.
As for growth, after touching a high of 8.2 percent for the first quarter of FY19, gross domestic product (GDP) growth has slowed down to 7.1 percent in the second quarter, and with the base effect benefit wearing off, the second half is unlikely to see a very strong growth.
In light of this, all the respondents polled by CNBC-TV18 were unanimous in their expectation of RBI leaving the repo rate unchanged at 6.50 percent in the fifth bi-monthly monetary policy, which is due to be announced on December 5.
The mix of economists, brokerages, treasury heads and bankers polled by CNBC-TV18 expect the MPC to remain in a wait and watch mode, while maintaining its ‘calibrated tightening’ stance. The respondents do not expect any change in the repo rate, at which RBI lends money to banks, until the end of the financial year.
Data released last Friday showed GDP growth slowing down in the second quarter, and the second half is expected to be weaker. Half the respondents believe the GDP growth estimate of 7.4 percent for FY19 may be lowered, whereas the other half believes it will be left unchanged for now.
The MPC had lowered the retail inflation forecast to 3.9-4.5 percent for the second half of FY19 and at 4.8 percent for the first quarter of FY20, citing risks from rising crude oil prices, possible fiscal slippages in an election year, global market volatility.
Eighty percent of the respondents polled by CNBC-TV18 expect the forecast for the second half of this year to be lowered, especially as inflation print is expected soft on the back of benign food prices.
Another subject that has dominated debates among economists is that of liquidity. RBI has bought bonds worth Rs 10,600 crore through Open Market Operations (OMO) since September, and is expected to further infuse Rs 40,000 crore more before the end of this fiscal year. Despite these moves, the system liquidity remains in deficit.
However, given that RBI is managing this through repo and OMOs, the respondents do not expect any significant measures to be announced in this policy. Only ten percent of those polled expect the RBI to cut the cash reserve ratio (CRR) for banks to meet liquidity demands, but majority expects that tool to not be used.
The tone of the monetary policy may be more dovish, according to 90 percent of those polled by CNBC-TV18, given that retail inflation has under-shot RBI’s target of 4 percent for three straight months now.
The three-day meeting of the MPC started on December 3, and the resolution of the committee will be made public at 2.30 pm on Wednesday, December 5.
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