Saturday, 16 December, 2017

India's Central Bank, Wary on Inflation, Set to Keep Rates on Hold

India's Central Bank, Wary on Inflation, Set to Keep Rates on Hold RBI expected to keep policy rates unchanged
Frank Williams | 06 December, 2017, 12:16

Risk of rising inflation can be considered as one of the major factors that forced the RBI to keep policy rates unchanged in the fifth bi-monthly monetary policy review.

The Reserve Bank of India kept its policy rate unchanged at a more than seven-year low of 6.00 percent on Wednesday after inflation accelerated to a seven-month high and stronger economic growth reduced the need for monetary stimulus.

Similarly, the NSE Nifty was trading lower by 78.70 points, or 0.77 per cent, at 10,039.55.

The central bank is also likely to be concerned that the government may have a wider fiscal deficit in the fiscal year ending in March than the 3.2 percent target, raising the prospect New Delhi may have to sell more bonds.

The GDP growth rate showed an improvement in the second quarter of the financial year 2017-18. The reverse repo rate too remains unchanged at 5.75 per cent.

The monetary policy committee held discussions for two days. That's low by Indian standards, but not far from the central bank's 4 percent target.

Stocks Movement Analysis: Intel Corporation (INTC), Macy's, Inc
It is positive, as 24 investors sold VEEV shares while 83 reduced holdings. 46 funds opened positions while 93 raised stakes. Fulton Breakefield Broenniman Lc holds 1.15% of its portfolio in Intel Corporation (NASDAQ: INTC ) for 190,706 shares.

We are likely to see a turn in the rate cycle and things will start moving up because cost of funds will move up and the RBI has sent an explicit signal that is primarily concerned about inflation and narrowing output gap.

"In addition, concerns over the inflationary impact of high oil prices, bank recapitalization, and fiscal slippage risks will also leave the RBI wary of lowering rates further". It was 6.3 per cent, a marginal increase from last quarters 5.7 per cent.

In addition, the consumer price index (CPI), or retail, inflation for October rose to 3.58 per cent from 3.28 per cent in September.

On the positive side, RBI said there has been some pick up in credit growth in recent months. The banking sector stocks entered a negative territory ahead of the RBI's monetary policy decision as the stock market opened on Wednesday.

That has sparked renewed calls from some government officials for the RBI, which has cut the repo rate by 200 bps since January 2015, to trim again.

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