Post hiking policy rates in last two successive monetary policy committee (MPC) meetings, RBI surprises Analysts, Economists and Markets by keeping the policy rates unchanged where majority of them were expecting at least 25 basis point hike in Repo rate. The MPC stance was shifted from "neutral" to newly coined term "calibrated tightening stance".
As regards CPI based inflation, RBI has projected a range of 3.9% to 4.5% (down from 4.8% projected in last MPC meet) during second half of the FY18-19. A steep rise in crude prices in the international markets and hike in minimum support prices (MSP) of agriculture produce has given rise to inflationary concerns. RBI expects Open Market Operation (OMO) purchases to the extent of Rs 100,000 crores in the second half of the fiscal 18-19, to ensure adequate liquidity, enhanced currency in circulation and frugal Government Expenditure.
RBI has retained GDP growth estimate for FY18-19 at 7.4% whereas it expects economic growth to accelerate to 7.6% in FY19-20. The MPC meeting outcome sent rupee tumbling to 74.21 mark against US dollar. It would be pertinent to note 5% depreciation in the rupee value affects CPI by 20 basis point. According to RBI Governor, the current level of forex reserves is good enough to meet 10 months of import requirement. The recent depreciation of rupee is moderate as compared to other emerging markets. He didn't indicate any range for the rupee-dollar exchange rate, leaving market forces to determine the exchange rate.
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