INSUBCONTINENT EXCLUSIVE:
Mumbai: With retail inflation in the country having regained the 5 per cent mark, the Reserve Bank of India's Monetary Policy Committee
(MPC) began its extraordinary three-day consultations on Monday for the second time before an announcement of its bi-monthly policy review
slated for Wednesday.A similar three-day meeting of the MPC had preceded the previous policy review in June when, breaking the cycle of rate
cuts begun in January 2015, the RBI raised its key interest rate by 25 basis points (bps) to 6.25 per cent, responding to concerns on
inflation from surging global crude oil prices.The MPC had earlier always met over two days before the policy announcement.In June, the
six-member MPC voted unanimously for the rate hike that the central bank was undertaking after more than four years and came for the first
time under the current government.Retail inflation touched the 5 per cent mark in June, compared to 4.87 per cent in May, and has gone
beyond the RBI's revised projection of 4.8-4.9 per cent for the first half of the current fiscal year.The higher inflation last month
comes in the backdrop of rising global crude oil prices which have been ruling at over $75 a barrel.At the time of revising upwards its
projection for the fiscal year's first half during the June policy review, RBI Governor Urjit Patel noted that inflation had remained
above the central bank''s medium-term target of 4 per cent for more than six months.The RBI, however, maintained its ''neutral'' stance on
policy, as it had done over four previous policy reviews when it held the repo rate, or its short-term lending rate for commercial banks, at
This stance allows the RBI to move either way on rates.In the current scenario, given also that industrial output growth fell in May at 3.2
per cent, as compared to rise of 4.9 per cent in April mainly on account of a decline in manufacturing, analysts are divided on the extent
to which RBI will harden its stance on Wednesday."On the RBI policy, the markets are divided on policy rate hike in the next weeks meeting
The decision weightage given by MPC to core inflation is crucial and whether RBI changes its stance from neutral to hawkish," said Devendra
Nevgi, founder and principal partner, Delta Global Partners."RBI is likely to be data dependent and cautious on hikes," he
added.Complicating the situation for the RBI is the fact that interest rates in developed markets were rising after a prolonged period of
The US Federal Reserve increased its funds rate in June by 25 bps to a target range of 1.75-2 per cent.The European Central Bank and the
Bank of Japan are also in the process of hardening their monetary policy stance.
