Even though RBI (Reserve Bank of India) lowered its inflation projection sharply from previous forecasts in its first monetary policy review for the new financial year, these two key factors must be closely watched out for. The inflation trajectory would highly depend on monsoon spread and MSP (minimum support price) fixation by the government going ahead. “The progress and spread of monsoons along with the MSP fixation by the government would be a key determinant for inflation in the coming months,” CARE Ratings report said.
In its first monetary policy for the new financial year, RBI (Reserve Bank of India) kept key policy rates – repo and reverse repo – unchanged. It also lowered the inflation projections for this fiscal compared to its earlier forecast and projected a higher GDP growth of 7.4 percent in 2018-19. The central bank estimated CPI inflation for FY19 to 4.7-5.1 percent in the first half of fiscal year 2018-19 and 4.4 percent in the second half. RBI, in its last outing, had projected the inflation forecast of 5.1-5.6 percent and 4.5 -4.6 percent, respectively.
The RBI’s Monetary Policy Committee (MPC) voted 5-1 in favour of leaving repo rate at six per cent backed by the view that there are various uncertainties surrounding the baseline inflation path. “We expect RBI to maintain status quo at its next monetary policy meet in June. RBI’s rate action going forward would be contingent on the inflationary trajectory,” CARE said.
On rate cut prospects, CARE ruled out any possibility for the time being due to the RBI’s view on future inflation.The central bank also raised worries on about lack of clarity on MSP, monsoon, crude oil prices and HRA.