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BIZ-RBI-PATEL-POLICY


PTI mumbai India
Updated: 05-12-2018 19:41 IST

The Reserve Bank chose for the

status-quo at the Wednesday policy review to "pause and

reflect" on incoming dataprints, Governor Urjit Patel said,

hinting rate cuts are possible if headwinds to inflation do

not materialise.

On the surprising dip in inflation lately, Patel said

more dataprints are needed to ascertain its durability.

Even as the central bank lowered its inflation

forecast sharply to 2.7-3.2 percent for the second half of the

fiscal, it cited upside risks like food prices, impact of the

minimum support prices hikes on inflation, crude prices and

global financial markets.

"If the upside risks we have flagged do not

materialise or are muted in their impact in the incoming data,

there is a possibility of space opening up for commensurate

policy actions," Patel said, hinting a rate cut.

But many analysts and banks interpreted the tone of

the Governor and the MPC as indicating a long pause, and ruled

out any adverse action by the Mint Road at least for the next

two-three quarters.

Patel seemed to suggest that the status quo on the

rates and the stance was pending clarity on the data points.

"Given the assessment that growth will likely remain

healthy for the rest of the year, the MPC (monetary policy

committee) retained its stance at calibrated tightening so as

to buy time to pause, reflect and undertake future policy

actions with more robust inflation signals," he told reporters

at the post-policy customary presser.

The RBI retained its full-year growth forecast at 7.4

percent, though many analysts have lowered the same to 7.1-7.3

percent after the drastic fall in the second quarter numbers.

Deputy governor Viral Acharya said volatilities in dataprints

made the decision somewhat difficult.

He said even though the present numbers are lower, the

MPC projection is still showing inflation to be at 4.2

percent--above the medium term target of 4 percent -- for the

second quarter of the next fiscal.

"Recent dataprints have created massive uncertainties.

We really need sometime to assess the inflation outlook better

and then we will be able to take further policy action if

necessary," Acharya said.

Warning the Central and state governments against a

spending spree ahead of the polls, Patel warned that fiscal

slippage by both the states and the Centre will have an impact

on inflation prints.

In the fifth bi-monthly policy review, the RBI's rate

setting panel retained the repo rate at 6.5 per cent and as

also the stance.

It also kept the cash reserve ratio (CRR) unchanged at

4 percent, amid widespread speculation over a possible cut to

help quickly push liquidity into the system.

Banks have to mandatorily keep 4 percent of their

total deposits with the central bank in the CRR window, and

earns no interest on this.

Even a half-a-percentage cut in the CRR would have

resulted in a good liquidity inflow as the system-wide

deposits stood at Rs 118.25 trillion for the week ending

November 9, according to the latest RBI data.

When asked about leaving the CRR unchanged, Patel said

this (CRR) does not come under the ambit of the MPC, and also

other alternatives which make us believe that a CRR cut will

not be needed now.

"We see no reason to use CRR when we've so many

instruments at our disposal...which we've implemented over the

past two months for liquidity management,and which are broadly

market-based with some incentives," he said.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

COUNTRY : India

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