RBI Maintains Status Quo on Monetary Policy

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Ind-Ra as in India Ratings and Research held up expectations regarding RBI to maintain status quo on the Repo Rate, Reverse Repo rate, as well as Marginal Standing Facility rate so as to close at 6.5%, 6.0% and 7.0% respectively. The financial institutions have upgraded lending money process so as to keep Cash Reserve Ratio (CRR) at 4% in line. It had cut the rate by April 2016 due to nominal rainfall or dry monsoon. It gained strength after statement given by Indian Meteorological Department as the latest assessment conveying the pressure with due respect to inflation. The policies includefirming up of global oil prices and the impact of implementation of the award of Seventh Pay Commission.

The next secure step is to take as unchanged policy rates at such particular point. They seek so as to make room for financial institutions thus getting ease by 25bp in current FY. Also,it will be contingent on the negativity of monsoon and its subsequent impact on inflation along with crude price movement and global risk balance. Although the previous rate cuts for RBI remains a progressive report which seems as uncertainty in domestic inflation. The prime sector has placed Consumer Price Inflation at the level of 5% during fiscal year 17 similar to current FY. The upside down of inflation in the midst of this year led food price increase by 5.4% as of Consumer Price Index. On the other hand, future domestic inflation would decide the behavior of food inflationand the ability of the manufacturing sector to exercise pricing power over the coming months will determine the inflation trajectory.


According to Indian Meteorological Department, Therevised forecast, rainfall will be above normal and well distributed (spatial and temporal) this year. In addition, the existence of excess capacity in the manufacturing sector will keep a check on output prices even as demand picks up.

If we take a glance at RBI verdicts, then they stated at domestic conditions regarding growth is on a verge of improvement due to consumer demand. Rural demand will speed up in a context of monsoon conditions while the rise inconsumer confidence, combined with the implementation of Pay Commission award. The vision of forwarding-looking surveys might bring improvement in ordering books, business situations, and capacity utilisation. Though private investment remains weak financial holdings whereas public investment which include roadways and railways has gained boost up.The central financial institution has retained its projection of gross valued added for FY17 at 7.6% based on its assessment of risks from domestic and global factors.

The bond market is likely to have the neutral impact on the monetary policy. RBI stated as staying accommodative thus providing liquidity in a stable manner. They will explicitly focus on high volatility global developments likewise the upcoming US Fed policy review along with Brexit vote decisions. It has made an open market purchase of .70 trillion INR in past two months.While the short-term possibility of bond yields moving up remains constructive on medium dual terms;favourable demand, supply dynamics and easy liquidity. As of Indian Rating and Research, the overall focus ought to be on two things. One on uncertainty’s related Fed actions and another is dry monsoons.

The Foreign Currency Non-Resident Bank a/c deposit redemption risks might remain stable. The respective institution is deploying all communication channels to discourage rigorous episode of currency speculations withstanding fundamental concerns. Apart from enduring such rules, managing rupee liquidity in upcoming tenure is in various forms such as longer repo terms,strong infusion through open market operation purchases of G-sec and relaxation in the daily requirement for cash reserve ratio. The transitions might be in neutral liquidity position.RBI’s proactive cognizance of redemption pressure is a willingness to utilise foreign exchange reserves will ensure rupee stability when the bunched up recovery fall due. The Fed policy outcome might stay relatively stable and also continue intake risks from the shifts in global preference.

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