MPC meet: RBI may opt for status quo on rates tomorrow

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Industry has been pitching for a rate cut to boost GDP growth which fell to 7.1 per cent in 2016-17, from 8 per cent in the previous fiscal. The Twelve economists polled by the Business Standard ruled out a rate cut by the central bank'. The margin of monetary policy corridor was narrowed from 50 bps to 25 bps resulting in a change in reverse repo rate from 5.75% to 6% and marginal standing facility rate from 6.75% to 6.50%.

The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term inflation target, while supporting growth, the bank said.

However, unlike his predecessors, Patel can't exclusively decide the interest rates since he now shares the responsibility with the Monetary Policy Committee (MPC) that he heads.

Investors' uncertainty over the RBI's stance was heightened by the release of minutes from the April meeting of the monetary policy committee which showed two of its six members had proposed rate hikes, before the committee ultimately voted 6-0 to leave rates unchanged. On GST, which will be implemented come July 1, the RBI said GST is not expected to have material impact on overall inflation.

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"I do not think the RBI will cut repo rate in the upcoming policy".

According to rating agency ICRA, RBI is unlikely to cut rates in its policy review but the tone of the statement will be less hawkish than the previous one.

The statement has raised concerns over fiscal slippages in view of rush for farm loan waivers.

Meanwhile, the RBI has cut the statutory liquidity ratio-the percentage of funds banks must maintain in gold and government-backed securities-by 0.50% to 20% of their net demand and time liabilities.

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The panel also noted that incoming data suggest that the transitory effects of demonetisation have lingered on in price formations relating to salient food items, entangled with excess supply conditions with respect to fruits and vegetables, pulses and cereals. The MPC remained focused on its commitment to keeping headline inflation close to 4% on a durable basis keeping in mind the output gap, it said.

DBS, another brokerage house, also expects the RBI to keep benchmark rates steady, considering the likelihood of inflation inching up again later in the year.

"RBI would see the data and if it moves in the same direction we might see a rate cut in the next policy due in August", he adds.

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