With concern on retail inflation, RBI hikes Policy Rate
The hike in the Benchmark Policy rate by Reserve Bank of India shows the RBI’s concern over spikes in retail inflation, especially food inflation, in recent months. More importantly, RBI has revised upwards its CPI forecast to 4.8-4.9% in first half and 4.7% in the second half of FY 2018-19. This indicates RBI will remain more vigilant on retail price levels in the coming months. On the growth side, RBI has retained GDP growth forecast for the current fiscal at 7.4% with risks evenly-balanced. At the same time, the policy statement takes note of some near-term risk like, inflationary push from any fiscal challenges , temporal and spatial distribution of monsoon, volatile crude oil price, etc.
RBI has hiked the Benchmark Policy Rate- Repo by 25 bps to 6.25% in its Second Bi-Monthly Monetary Policy (2018-19) . the same time, RBI has maintained its ‘Neutral stance’.
RBI’s step on the Liquidity Coverage Ratio (LCR) by allowing another 2% of NDTL under FALLCR to be recognized for computation will be good for banks. Harmonisation of Priority sector lending guidelines for housing loans with the PMAY Affordable housing schemes will bring more clarity in this area. On the real sector front, RBI expects capacity utilization to remain firm in coming times and sees increased industrial activities. Overall, the policy statement reiterates RBI’s commitment to manage inflation at 4% level, while taking care of real economy growth at the same time.
