RBI releases First Bi-monthly Monetary Policy Statement 2018-19

10 factors that will impact RBI’s decision in first monetary policy review 2018-19

The six-member monetary policy committee (MPC), headed by RBI governor Urjit Patel, said that latest high-frequency data such as auto and commercial vehicle sales signal an improvement in the underlying trends, mirroring a smart rebound in household spending.

Mumbai: The Reserve Bank of India (RBI) on Thursday kept its key policy rate unchanged, but lowered its inflation projection for FY19 reducing the odds of an interest rate hike in the near term. The first bi-monthly report for 2018-2019 mentions, "The Monetary Policy Committee (MPC) made a decision to keep the policy repo rate on hold and continue with the neutral stance". In February, the central bank had projected inflation in the 5.1% to 5.6% range in the same period.

MPC has projected inflation at 4.5 per cent in the fourth quarter of the last fiscal.

At present, only certain payment system operators and their outsourcing partners store the payment data either partly or completely in the country, the RBI said. On the global outlook, Patel said there is a considerable amount of risk from rising oil prices and other indicators such as fears of a trade war.

RBI seemed confident on growth prospects and suggested that the "output gap is closing" although it mentioned downside risks on global trade protectionism, market volatility and weak domestic public finances. "This is also reflected in a pick-up in credit offtake in recent months", it said.

Rajesh Shah, Ficci President, said: "While the Reserve Bank of India has maintained status quo in current monetary policy statement, we hope that RBI will soon consider cut in policy rate and give a further boost to demand and investments".

Investors, however, are in a wait-and-watch mode ahead of the RBI's first bi-monthly policy meet for FY19, they added.

Meanwhile, the central bank plans to constitute an inter-departmental group that analyzes the use of digital currency in the future. Reverse repo was kept unchanged at 5.75 percent and Statutory liquidity ratio (SLR), which stand at 19.5 percent, kept unchanged. Regulated entities already providing such services will have three months to wind down their cryptocurrency-related operations, RBI Deputy Governor BP Kanungo told reporters at a media briefing on Thursday.

"With inflation estimated to be in a kind of "no-man's land" (neither too high nor too low), we maintain our call that the RBI will remain on an extended pause", said Suvodeep Rakshit, senior economist at Kotak Institutional Equities.

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