Urjit Patel calls on FM before monetary policy review
- Author: Zachary Reyes Jun 20, 2017,
Jun 20, 2017, 5:30
However, a Bank of America Merrill Lynch (BofAML) report said it expects the central bank to cut rates by 25 bps on August 2, with May CPI inflation slowing below 2.5 per cent."We grow more confident of our contrarian call of a 25 bps RBI rate cut on August 2". GST is created to bring goods and services that today escape taxation into the tax net and there is bound to be a one-time bump in inflation, when indirect tax collections rise.
While leaving for the key rates unchanged, RBI made it easier for banks to lend more by cutting the Statutory Liquidity Ratio (SLR) by 50 basis points to 20 per cent of total deposits from June 24.
Noting that inflation has fallen below 4 percent only since November 2016, the MPC remains focused on its commitment to keeping headline inflation close to 4 percent on a durable basis keeping in mind the output gap.
"But there are several counterbalancing factors that could resuscitate inflationary pressures such as strengthening in consumption demand, rising pace of rural wage growth and higher government spending including through lager scale farm loan waivers and 7th pay commission". Evidently, the actual inflation rate has undercut the projections of the MPC and even then, the RBI has chosen to adopt a hawkish stance instead of a dovish one.
Overall, the monetary policy statement is a clear message to the government that rate cut is a useless exercise unless the key structural issues in the economy are solved. There is possibility of good monsoon.
To address the bad loan stress on the banks' financials, the central bank said it will continue to work in partnership with the government to address the stress in banks' balance sheets.
Mumbai: Will there be a rate cut in the near future on ebbing inflation or will the RBI look at current phase as transitory and hold for long?
The RBI has also been urging banks for further transmitting to customers the benefits of its earlier rate cuts. But, the RBI cut the economic growth projection for the current fiscal to 7.3 percent from 7.4 percent earlier.
Notching its lowest annual rate in at least five years, consumer price inflation INCPIY=ECI slowed to 2.99 percent in April from 3.89 percent in March, just below the RBI's target of 4.0 percent. This is the first time that a divergence in voting has been seen within the member circle since the time MPC regime came into being.