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The hawkishness widens within the MPC: Angel Broking

Posted On: 2018-04-20 08:41:00

Views of Mr. Jaikishan J Parmar (Research Analyst, Angel Broking):

"It was clear from the monetary policy announcement that the Dr. Patra was the only member of the Monetary Policy Committee (MPC) who had actually voted for a rate hike. Now it emanates from the minutes of the MPC that were made public on 19th April that Dr. Patra is entirely in favor of a series of rate hikes from here on. According to Dr. Patra, the inflation risk is still very strong due to oil and food prices and the RBI may find inflation spilling above its 6% upper limit. All the other members of the MPC had voted for a status quo on rates.

Even the policy document had actually acknowledged that there were two principal risks for inflation in the current year. Firstly, Saudi Arabia has been talking about $100/bbl as a possible target for oil prices. That could be a big source of imported inflation for India. Secondly, the new MSP formula at 150% of the cost of production could also intensify the inflationary pressures. According to Dr. Patra, the situation called for a series of rate hikes by the RBI to quell the risk of inflation shooting beyond the 6% mark.

Interestingly, none of the other five members including Dr. Urjit Patel have countered Dr. Patra's estimates of the inflation risk. The argument in each of the other cases has been more towards holding rates to avoid the nascent economic recovery being nipped. That substantially opens up the risk of a rate hike by the RBI either if the inflation gets closer to 6% or if the Fed gets more hawkish in its outlook."


Source: Equity Bulls

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