Money & Banking

RBI strikes another blow in inflation fight

Surabhi Mumbai | Updated on August 01, 2018

Urjit Patel, RBI Governor   -  REUTERS

Monetary Policy Committee concerned about rising inflation

The Monetary Policy Committee of the Reserve Bank of India on Wednesday decided to increase the repo rate by 25 basis points to 6.5 per cent, as it remained concerned about rising inflation.

“Consequently, the reverse repo rate under the LAF stands adjusted to 6.25 per cent, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75 per cent,” the RBI said in its the third bi-monthly monetary policy statement.

Though the prices remained below its estimated trajectory, the RBI has forecast retail inflation at 4.6 per cent in the second quarter of the fiscal, 4.8 per cent in the second half of the fiscal and five per cent for the first quarter of 2019-20.

In the second bi-monthly resolution of 2018-19, it had projected CPI inflation for 2018-19 at 4.8-4.9 per cent in the first half of the financial year and at 4.7 per cent in the second half of the fiscal.

Though the monetary policy statement noted that inflation projections for the second quarter have been revised marginally downwards compared to the June statement, several risk factors persist, including volatile crude oil prices and global financial markets, as well as concerns of fiscal slippage by the Centre or States.

It also noted that households’ inflation expectations have risen significantly in the last two rounds along with the expectations of manufacturing firms of a hardening of input prices.

Regional distribution of monsoon also has to be carefully monitored while staggered HRA revisions by state governments could have a second round impact on inflation as well.

The RBI policy retained the GDP growth projection for 2018-19, as in the June statement, at 7.4 per cent, ranging between 7.5-7.6 per cent in the first half of the fiscal and 7.3-7.4 per cent in the second half of the fiscal. GDP growth for the first quarter of 2019-20 is projected at 7.5 per cent, it further said.

PTI reports:

Growth outlook

The central bank said various indicators suggest economic activity continued to be strong. "The progress of the monsoon so far and a sharper than the usual increase in MSP of kharif crops are expected to boost rural demand by raising farmers’ income. Robust corporate earnings, especially that of fast moving consumer goods (FMCG) companies, also reflect buoyant rural demand. Investment activity remains firm even though there has been some tightening of financing conditions in the recent period," the policy statement said.

Click here for full RBI - Monetary Policy Committee Statement

Published on August 01, 2018

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like