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MOSL: ECOSCOPE- RBI maintains status quo; We don’t expect change in policy rate in 2018

ECOSCOPE: RBI maintains status quo; We don’t expect change in policy rate in 2018

 

• The Monetary Policy Committee (MPC) maintained status quo today, in line with market consensus. Interestingly, while the vote share was unchanged at 5-1 in favor of the decision, this time, the dissenting vote was in favor of a rate hike (by Dr Michael Patra) as opposed to a rate cut (by Dr Ravindra Dholakia) last time.
• The RBI revised its inflation projections for 4QFY18 upwards while GVA forecasts were revised downwards. It now sees inflation at 5.1% in 4QFY18, as against its previous expectation of 4.3-4.7% in 2HFY18, and projects it to be in the range of 5.1-5.6% during 1HFY19, before moderating to 4.5-4.6% in 2HFY19 owing to a favorable base effect. It stressed that risks to inflation are tilted to the upside, while they is balanced for GVA growth.
• We expect inflation to peak at ~6% in 1QFY19 on account of an adverse base, after which it should start moderating and end FY19 at ~4%. Further, real GVA growth of 6.6% for FY18 and 7.2% next year still appears a tall task. Consequently, we expect RBI to keep policy rates unchanged in 2018.