New Delhi: Following the announcement of the Reserve Bank of India's (RBI) bi-monthly monetary policy, credit-rating body ICRA noted that the statement is in line with industry expectations.
"The status quo in the First Bi-monthly Monetary Policy for 2018-19 is in line with our expectations. The balance of risks and outlook included in the policy suggests a low likelihood of a change in the repo rate or stance of monetary policy until there is greater clarity on the extent of impact of the MSPs and monsoon on the inflation trajectory, which is unlikely to emerge in the next few months. The relief for banks with the deferment of Ind AS, lowering of the CPI inflation projections for FY2019, focus on strengthening macroeconomic fundamentals, as well as the high likelihood of an extended pause, have significantly cooled G-sec yields and spurred the markets," it said in a statement.
Echoing a similar stance, India Ratings & Research, a Fitch Group company opined that the tone of the policy suggested that despite several uncertainties surrounding inflation trajectory, the RBI is not in a hurry to change its neutral stance of monetary policy.
"Although the RBI has listed a number of issues such as revised MSP announced in the FY19 Union Budget, staggered impact of HRA revisions by various state governments, another round of fiscal slippage both at the central and select state governments and volatility in crude oil prices, it is still hopeful of CPI remaining in the range of 4.7-5.1 percent during the first half of FY 18-19 and 4.4 percent in the second half. India Ratings and Research therefore believes that the RBI may remain in a pause mode in the near term so far as policy rate is concerned," said Dr.Sunil Kumar Sinha, Director - Public Finance, and Principal Economist, India Ratings & Research.
However, HDFC Bank's Chief Economist Abheek Barua suggested that if there is a permanent shift in paradigm of inflation management from a singular focus on bringing long-term inflation down to support more growth, the RBI might go for a long pause.
"This was an unexpectedly dovish policy with the RBI highlighting inflation risks (oil, procurement prices, HRA for government employees) but at the same time revising their forecasts downward. If this is a permanent shift in the paradigm of inflation management from a singular focus on bringing long-term inflation down to four percent to an approach that is more supportive of growth, the RBI might go for a long pause. Bond yields that have rallied are likely to move down a little more. However, whether this is a transient bout of 'dovishness' or whether it will endure (especially if one of risks were to surface) remains the key question," he said.
Earlier in the day, the central bank kept the repo rate and reverse repo rate unchanged at 6 percent and 5.75 percent respectively.
The RBI's six-member monetary policy committee (MPC) noted that the real Gross Domestic Product (GDP) growth in FY19 is estimated at 7.4 percent as against 6.6 percent in FY18.