(Reuters) - The Reserve Bank of India on Wednesday kept its key repo rate at 6 percent for a third straight policy meeting, and also retained its “neutral” stance, seeking to support economic growth even as inflation has accelerated to a 17-month high.
All but two of 60 economists in a Reuters poll predicted the repo rate would be kept on hold at its lowest level since November 2010.
“Ostensibly, they have maintained the neutral stance but the tone of the statement is definitely more hawkish. There seems to be particular concern around the fiscal position following the budget last week. It reinforces our view that there will be rate hikes later in the year. We’re expecting rate hike in the second half of the calendar year.”
“The policy decision is in line with our expectation along with the hawkishness that is built into the statement. While we retain status quo from RBI for FY19, a risk to our call may come from higher inflation.”
“As anticipated, the last planned review for FY2018 saw the Monetary Policy Committee (MPC) leaving the repo rate unchanged at 6 percent. Moreover, it retained the neutral stance of monetary policy and reiterated its commitment toward achieving the medium term inflation target of 4 percent.”
“Despite the upward revision in the inflation forecast and concerns highlighted regarding growing inflation risks amid the crystallization of the fiscal slippage, the tone of the policy was not as hawkish as expected, given the comment that the nascent recovery needs to be carefully nurtured.”
“The central bank’s stance was largely along expected lines, reflected in a relatively muted response in the bond and equity markets. The stance is tilted slightly towards hawkish, with headline inflation seen above target in FY19.”
“They remain optimistic on growth, expecting FY19 to head back toward 7 percent. The guidance is likely to remain data-dependent, with a shift to tighten rates requiring further evidence in a built-up in inflationary pressures.”
“(The) tone was construed to be relatively hawkish, but the markets were actually expecting this given the trend in inflation.”
“There is upside risk (to inflation) given that the budget has announced a hike in minimum support prices for most food commodities ... Given that we are above 5 percent, if we go to around 6 percent, there is a chance that RBI may go for a rate hike in the first half of the next fiscal year.”
“I think they have tried to maintain a fine balance between the highs and the lows, its a fairly neutral policy.”
“I think they’ve of course highlighted that there are upside risks to the inflation trajectory at this point in time but they are also looking at the possibility of a correction in oil prices ... At the same time they are still suggesting growth is not on a firm footing, but is at a nascent stage.”
“Expectations that oil prices will come down and if monsoons don’t surprise negatively, then we do expect the second half is going to see more moderation in inflation after peaking towards 5.6 or 5.8 pct in the first half of the calendar year. Keeping that trajectory in mind, we are not looking at a rate hike this year.”
Reporting by Mumbai and Bengaluru Bureaus; Editing by Euan Rocha