Bikky Khosla | 02 Apr, 2018
The
Reserve Bank of India will review its monetary policy on 4-5 April.
In its last review in February, which took place against the backdrop
of fiscal slippages, pressure on inflation and rising oil prices, the
policy rate was left unchanged at 6 percent. But the tone was
cautious. The decision to not change the repo rate was taken with a
5-1 vote, with one member calling for a quarter percentage rate hike.
This time again, it is widely viewed, the central bank may maintain
status quo.
It
is estimated that inflation may average around 4.6 percent in
January-March quarter, lower than the RBI's projection, but it is
unlikely that the central bank will not take into account the
inflationary risks in the form of higher oil prices, increase in
Minimum Support Price and Pay
Commission payouts. On the
other hand, a broad based industrial recovery was witnessed in the
past two months, indicating a strong cyclical recovery. It seems the
central bank will follow a 'wait and watch' policy as of now amid
these conflicting trends.
Such
a balanced approach is expected by the Indian industry as well. It is
pointed out that as inflation
has
started coming down a
status quo in rates would address the upside risks to inflation while
addressing
the aspirations
of growth. Some
experts are also of the view that the central bank should maintain
sufficient liquidity in the bond market in
order to keep interest
rates moderate.
Also,
demands are raised that the RBI's banning of letters
of undertaking for trade finance should
be lifted, particularly for SMEs.
Meanwhile,
the trade war between the US and China has continued to escalate,
with the latter slapping
a tariff as high as 25 percent on 128 American products. The
move came after Trump administration's imposition
of trade
charges of up to $60 billion on Chinese imports
despite Beijing's
stern warning. This
is not a good sign for global trade as well as India's
exports. Additionally, if the conflict continues, the Rupee could be
adversely affected and the RBI may in such a situation go
for rate hikes to protect the currency.
I
invite your opinions.
