Monetary Policy maintains status quo on rates: Angel Broking

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

"Along expected lines, the monetary policy kept status quo on rates but turned the tone of the policy slightly hawkish. So the repo rate stays at 6% but the policy has guided a full year GVA (Gross Value Added) growth of 6.6% and inflation rate in excess of 5.1%. This higher CPI inflation is a consequence of higher food prices due to more aggressive MSP for farmers and also the potential impact of further hikes in crude oil prices. While the policy has avoided mention of interest rate hikes, the accent on a neutral monetary stance, recovery in GDP growth and higher inflation expectations are indicative of possible rate hikes during the year.

There are two important announcements in the policy that could have relevance for the inflation expectations. Firstly, the Monetary Policy Committee (MPC) has admitted that the 30 basis points rise in fiscal deficit for the next 2 years could be inflationary. Secondly, the staggered impact of higher HRAs by various state governments could also put pressure on inflation. While the MPC has spoken about inflation sobering to 4.6% level in the second half, which does look unlikely at this point of time. The policy has not made any mention of support to the bond market prices by the RBI as anticipated by the bond market traders. Overall, the undertone of the policy is hawkish."

Source : Equity Bulls

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