DBS Bank Comments on Monetary policy

Ms. Radhika Rao, India Economist, DBS Bank

The RBI backed its neutral stance by a downward revision to the inflation forecasts (excluding HRA), but expressed more conviction that GDP growth has bottomed out and is likely to gain momentum this year. Marking a notable shift from the Minutes of the February meeting - April's tone was less cautious than markets anticipated, which might see swaps shake-out expectations of imminent policy tightening. On inflation, the June to December 2018 quarters are likely to distorted by statistical factors - base effects and fading impact of one-off catalysts same time last year, with a true underlying picture likely to emerge into 2019. We expect inflation to remain above target this year, but not test past the higher band i.e. 5-6% levels in a sustained fashion. Overall, today's tone and direction prompts us to maintain our call for benchmark rates to be kept steady in 2018. Policymakers will nonetheless remain mindful of an increase in inflationary expectations on the back of MSP increases, high domestic fuel prices and global uncertainties (heightened trade war concerns, rupee volatility), keeping them on a balanced path.

Source : Equity Bulls

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