‘Status quo on rate likely but RBI tone may be slightly hawkish’


New Delhi, Feb 5: After Budget 2018, all eyes are on RBI monetary policy scheduled to be released on February 7. Economists largely expect status quo on policy rates but key to watch would be the commentary.
According to a majority of economists, RBI may start hinting about rate hike in forthcoming policies in line with a tightening global interest rate cycle.
“We continue to expect the RBI to persist with its slightly hawkish pause in its Wednesday policy, from February, to err on the side of caution,” Bank of America Merrill Lynch said in its research note.
“That said, falling onion prices, after tomatoes, support our call that inflation risks are overdone,” it added. In fact, the government has reportedly removed the US$700/t minimum export price for onions.
Inflation is seen cooling to 5 percent in January from 5.2 percent in December with the vegetable price spike expectedly reversing, according to the research house.
December inflation actually printed a benign 4 percent, well within the RBI’s 4-6 percent inflation mandate, adjusted for the onion and tomato price spike.
CPI inflation for January will be announced on February 12, 2018.
Fundamentals – weak growth, tight M3, a possible La Nina monsoon year this year – do not support a higher inflation outlook, looking through base effects, according to BoAML.
It expects the RBI MPC to look through base effects that will drive up growth, credit and inflation in mid-2018.