RBI MONETARY POLICY

BSE Sensex & Nifty were all set & ready on the diving plank even before the Reserve Bank Of India could announce its sixth bi-monthly monetary policy and by the end of it both indices closed lower by 113 points and 0.21% respectively on 7^th February. Things would have been slightly different had the whole of MPC voted along with Dr Michael Debabrata Patra for a 25 basis point rate hike.  Markets would have gone for a double dip after the brutal LTCG budget strike.  And along with the LTCG strike also came the 30 basis point fiscal slippage making it very easy for the central bank to maintain its status quo for a third time in a row and give a sense of predictability to the whole volatile economic scenario.

The Reserve Bank Of India, kept its rates on hold with Repo Rate unchanged at 6% and Reverse Repo Rate at 5.75% under the LAF. The Bank Rate and Marginal Standing Facility remains at 6.25%. As per the RBI, the liquidity continues to be in surplus and is moving towards neutrality. The Central Bank expects inflation to hover between 5.10% -5.60% in the first half of 2018 and settle down around 4.5% in the second half due to low base effect and normal monsoon expectations.  The growth prospects are even more optimistic with GVA moving from 6.60% in 2017-18 to 7.20% in 2018-19 due to higher investment & credit off take, exports gathering further momentum along with capital goods production and recapitalization of PSU banks.

The Monetary Policy was cautious, heavily data driven, predictable and optimistic with respect to both global and domestic growth. With equity markets being roiled every day, crude prices moving both sideways along with uncertain domestic fiscal discipline, maintaining its status quo was the right thing to do. But Rising rates definitely looks certain with double digit credit growth, corporate earnings recovery and rural & infrastructure budget push. May be, early next year we’ll both Raise the rates and the cricket world cup.