RBI may keep repo rate unchanged at 6% in April policy review

There is a clear consensus that the six-member monetary policy committee of the Reserve Bank of India (RBI) would keep the repo rate unchanged at 6 per cent next week.

This is an emergent view, which was missing in previous polls undertaken by the newspaper. Surely, any change in rates or stance is not expected in the first bi-monthly monetary policy review for 2018-19 on April 4-5. But the inflation trajectory has surprised many and stagnant growth could compel the RBI to go for a rate cut, according to some economists.

The consumer price index (CPI)-based inflation in February came at 4.4 per cent, below the RBI’s March projection of 5.1 per cent. The inflation rate is likely to fall further in March. The sharper-than-anticipated fall in prices opens up the space for the central bank to cut rates, especially at a time when growth is not expected to pick up sharply.

Soumya Kanti Ghosh, group chief economist of SBI Group, expects the inflation rate to fall to 3.5 per cent. This gives the central bank the chance to be more accommodative and offer a 25 basis point rate cut this calendar year, he added.

But only two of the 15 people polled mentioned about a rate cut. Among those who offered a clear view, six expect at least a 25 basis point hike in the coming months, and four said there would be a prolonged pause.

In is February policy, the central bank revised its inflation outlook upward at 5.1 per cent for the March quarter, higher than its earlier forecast of 4.3-4.7 per cent in the second half of 2017-18. In the first half of 2018-19, retail inflation would be in the range of 5.1-5.6 per cent, but may cool down to 4.5-4.6 per cent in the second half, according to the earlier projection.

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