The First Bi-monthly Monetary Policy for 2019-2020 is scheduled on 4th April and this time expectations are high from RBI. As RBI surprised everyone last time. Many brokerage houses are again expecting a rate cut of 25 basis points few are even expecting a 50 basis.
Expecting a rate cut is obvious as inflation is low and there is a room for RBI to go for a development push and make some rate cut.Government data shows that inflation-based on the consumer price index (CPI) cooled further to a 19-month low of 2.05 percent in January, versus 2.11 percent in December and 5.07 percent in January of 2018.
Retail inflation has been on a downward trend over the last several months, mainly driven by lower food prices. More importantly, core inflation (excluding fuel and food prices), which had remained sticky at close to 6 percent in October has also declined to 5.4 percent last month.
While inflation has been low, India’s industrial production growth has remained benign. The factory output measured in terms of the index of industrial production (IIP) grew 2.4 percent in December 2018, higher than the 0.3 percent growth in November, but still significantly lower than the 7.3 percent in December 2017. This could also influence a rate cut.
Under Governor Urjit Patel, RBI’s foremost focus had been on keeping inflation in check. For his successor Shaktikanta Das, economic growth also seems to be equally important. “The primary objective would be to maintain price stability while keeping in mind the objective of growth,” he said in an interaction with reporters after the MPC meeting last week.
However, inflation is likely to edge over 4 percent in the second half of the next financial year and there are various upside risks from volatility in food and fuel prices, monsoon uncertainty, possible fiscal slippages and high core inflation, and in this back drop the MPC would be constrained to cut rates aggressively
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