CAPITALSTARS RBI POLICY: OUTCOME

As expected there was no any change in repo rate, it remain constant at 6%. Bench members of six people out of which five were in favor of keeping rates unchanged and one member wanted a rate cut of 25 basis but as per majority, MPC decided to keep rates unchanged.
In his conversation after the policy, MPC seems to be positive on global growth rate and expecting global economy to grow at a gradual pace. Along with other countries, India is also expected to grow a fair pace and that’s why MPC maintained the growth rate projection at 6.7% for FY’18.
RBI governor especially emphasized on use of POS and highlighted that POS uses has increased in recent times. RBI will continue to take measures to push digital transactions to grow at a past pace.
One major focus of RBI is to keep inflation rate on check and it increased the inflation forecast for the remainder of the current fiscal year to 4.3-4.7%. There are several key factors which could continue the trajectory of rising inflation in coming years. First and foremost thing is moderation in inflation in food and fuel prices. Second thing is the impact of HRA by central government is expected to be highest in December. Third OPEC countries have clearly indicated that they will maintain production cut in next year. This may cause rise in fuel prices furthermore.
In the MPC assessment, Capital raised from the primary capital market has increased significantly after several years of sluggish activity. As the capital raised is deployed to set up new projects, it will add to demand in the short run and boost the growth potential of the economy over the medium-term. Second, the improvement in the ease of doing business ranking should help sustain foreign direct investment in the economy.
The Indian economy grew 6.3 percent in July-September, recovering from a three-year low growth slump of 5.7 percent in April-June, as companies scaled up production and restocked supplies after goods and services tax (GST) kicked in from July 1.
Dr. Chetan Ghate, Dr. Pami Dua, Dr. Michael Debabrata Patra, Dr. Viral V. Acharya and Dr. Urjit R. Patel were in favor of the monetary policy decision, while Dr. Ravindra H. Dholakia voted for a policy rate reduction of 0.25 basis points.
The next meeting of the MPC is scheduled on February 6 and 7, 2018.

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