The newly-constituted Monetary Policy Committee (MPC) headed
by RBI Governor Urjit Patel is unlikely to lower rates at its maiden policy
review on Tuesday as it awaits more supporting data on inflation, experts said.
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The monetary policy review on October 4 will be the first by
the six-member MPC as well as Governor Patel, who as the deputy governor had
described the RBI as an owl when it comes to inflation management.
"I don't think
the Reserve Bank is going to change rates as inflation -- both WPI and CPI --
have not softened much," Bank of Maharashtra Managing Director and Chief
Executive R P Marathe told PTI.
August retail inflation eased to a five-month low of 5.05
per cent but WPI inflation climbed to a two-year high of 3.74 per cent. Before
the dip in August, both the retail as well as wholesale price indices was on a
continuous upward spiral.
The government had in August notified 4 per cent inflation
target with a range of plus/minus 2 per cent for the next five years under the
monetary policy framework agreement with the Reserve Bank.
Patel was the one who wrote the inflation glide path for RBI
when he was deputy to former Governor Rajan, and analysts say it is unlikely
that he will jettison his guard on price rise, especially under the new
inflation targeting framework. "RBI is unlikely to cut rate this
time," Union Bank of India Chairman and Managing Director Arun Tiwari said.
On his policy expectations from the new Governor, he said
Patel may announce "some more measures related to resolution of
non-performing assets". Rating agency Crisil also thinks there will be no
rate cut on Tuesday as "RBI may choose to wait for some more time before
wielding the knife as inflationary trends may accelerate going forward."
"Risks to
inflation could emanate from high protein inflation, which has recorded
double-digit growth for 14 consecutive months, services inflation, especially
in rural areas, which is keeping core inflation high and sticky and surprise
pick up in oil prices," Crisil said in a recent note.
Another rating agency India Rating said, the sharp fall in
retail inflation in August has accentuated the rate cut proposition in the next
quarter itself, though it has made the RBI's target of bringing retail price
inflation down to 5 per cent by March 2017 achievable. "But it may be
early to rejoice given the baffling behaviour of retail inflation in the past.
The cyclical components either aggravate or soften it as is
evident from the movement in wholesale prices," India Rating said. It
further said the wholesale food price inflation was 5.3 per cent during
financial years 1996 to 2005 but increased to 9.2 per cent between financial years
2006 and 2016.
"Clearly, the fight on the inflation front,
particularly food inflation, is far from over," it added. Some market
participants feel the MPC, which is meeting for the first time, may wait for
more sustained signs of moderation in inflation and may go for a rate cut only
in the December policy.
BNP Paribas Chief Economist Richard Iley said, "With
core inflation developments remaining benign, the door is ajar for a final 25
basis point rate cut this cycle although Patel may choose to delay a move until
December." Japanese brokerage Nomura expects a 25 basis points repo rate
cut in December, followed by an extended pause in 2017, given upside risks to
inflation and sticky underlying factors.
MPC has three members
each from the government and the Reserve Bank. The government nominees are
Chetan Ghate, professor at the Indian Statistical Institute; Pami Dua,
Director, Delhi School of Economics and Ravindra H Dholakia, professor at
IIM-Ahmedabad, while RBI nominees are the Governor, Deputy Governor in-charge
of monetary policy R Gandhi and Executive Director Michael Patra.
For the upcoming monetary policy announcement, the RBI has
rescheduled the timing to mid-afternoon against the usual 1100 hrs. If the
six-member panel is divided on rate decision, the Governor can use his veto
power to take a final call on the policy rates.
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