RBI Policy Reaction - Radhika Rao, India Economist, DBS Bank

The RBI policy committee reaffirmed its neutral stance, whilst shifting inflation estimates for FY18 to the higher end of their February projections. They maintained that the move towards a 4.0% CPI target will be calibrated and gradual. At the same time, base projections point to above 4.0% inflation in FY18 and FY19, suggesting limited conviction that the 4.0% target can be met in the medium-term. However risks of a hike are negligible for now. Official growth projections reflect their optimistic outlook limiting the need to take an accommodative policy stance.

The repo rate was left unchanged but the corridor narrowed to +/-25bps (reverse repo and MSF rates) around the policy target to better align other money market/call rates to the formal policy stance. As expected the CRR was left steady; either way a measured hike would have been insufficient to mop up the surplus. Hence the RBI will continue to dip into the existing toolkit of term reverse repo issuances, open market operations and MSS (FY18 ceiling is at INR 1trn) bond issuances are likely to continue.

Source : Equity Bulls

Keywords