RBI MPC starts meeting to decide new rates amid slowdown, rising inflation

Marco Green
February 5, 2020

Through 2019, the economy continued to slow, with the GDP growth coming in at just 4.5 per cent in the September quarter.

"However, we are looking at further rate cuts during the year provided there are no new shocks on the inflation front", added Sabnavis.

"With the CPI inflation expected to remain above 6% in January 2020, and record a gradual decline toward 4% over the next 8-9 months, we expect an extended pause from the MPC in H1 CY2020, along with a change in stance to neutral from accommodative in either the February 2020 or April 2020 policy reviews", Aditi Nayar, Principal Economist, ICRA, is quoting as telling a leading business daily.

The retail inflation that for several months remained in the comfort zone of the central bank has started inching up and crossed the 7 per cent mark during December 2019, mainly due to spiralling prices of vegetables.

"Amid improving inflation prospects, government maintaining fiscal prudence and lingering weakness in the economic activity, we perceive an outside chance of the RBI taking a proactive rate cut in the February policy review".

Besides, in the recently presented Union Budget, the government has abstained from going for a big fiscal push so all this should be comforting to monetary authorities, Edelweiss said.

"The MPC, no doubt, faces a serious dilemma with its commitment to control inflation and manage growth". The slump in real GDP growth warrants accommodative monetary policy actions and stance, whereas the upturn in headline inflation for the fifth consecutive month calls for a cautious response, or at least to maintain a status quo at this juncture.

Crisil Ratings in its post-Union Budget 2020-21 comment has said, "Monetary policy has done its bit, but with moderate and slow success".

The composite Purchasing Managers' Index (PMI) number came in at 7-year high.

"Recent high frequency indicators show some green shoots".

The government has estimated India's gross domestic product (GDP) at 5 per cent in the current financial year owing to both domestic as well as global factors amid weakening consumption demand in the country.

Reserve Bank of India (RBI) Governor Shaktikanta Das-led Monetary Policy Committee (MPC) is expected to maintain status quo on policy rates in its last monetary policy for the current financial year, despite the economic slowdown. To that extent, inflation readings have peaked out, said Edelweiss.

For now the central bank may look to ensure ample liquidity in the system and take measures for faster transmission of earlier rate cuts.

Other reports by Click Lancashire

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