Markets expect RBI governor Urjit Patel to comment on recent bank frauds.(Reuters File Photo)
Markets expect RBI governor Urjit Patel to comment on recent bank frauds.(Reuters File Photo)

RBI monetary policy today: Here’s what to expect

A look at the key concerns the Urjit Patel-led monetary policy committeeis likely to address at its meeting, and the likely impact of change in repo rate.
Livemint | By Livemint
UPDATED ON APR 05, 2018 10:52 AM IST

The monetary policy committee of the Reserve Bank of India decides on the repo rate today, amid falling inflation, softening bond yields and a government borrowing programme that kicks off on Friday. Here’s a look at the background of the MPC meeting and the likely impact of changes in interest rates.

Will RBI change interest rates?

The Reserve Bank of India’s MPC is expected to keep interest rate unchanged in its April 5 rate decision announcement. The recent fall in inflation and recovering growth are seen supporting the case for a status quo, which should come as a relief for borrowers. Currently, the repo rate—the rate at which the central bank infuses liquidity in the banking system—is 6%.

What will be the inflation assessment?

With retail inflation slowing to 4.4% in February, inflation is likely to stay below RBI’s projection of 5.1% for the fiscal fourth quarter. This means the central bank won’t press for an interest rate hike or even indicate such a possibility in the near term as feared earlier. Apart from rising oil and commodity prices, higher minimum support price for farm products and implementation of increased house rent allowances are seen as threats to easing inflation.

What does this mean for growth?

After sluggish growth following the implementation of GST, economic activity has picked up. In the December quarter, GDP grew at 7.2%, the fastest in five quarters. Experts believe the recovery needs to be nurtured. Resolution of stressed loans, higher capital expenditure and capacity utilization can improve growth prospects. Easing rates in bond markets should also keep borrowing costs at current levels; hence, lowering rates to push growth may not be suitable.

Will it impact your loan EMI?

Changes in the repo rate have direct impact on bond yields, which in turn influences borrowing costs, including loan rates. Yields, which remained high till March-end, are trending down after the government announced lower-than-expected fiscal first half borrowing and regulatory dispensation for banks to stagger bond losses. Lower government borrowing will help private sector meet financial needs from the bond market at a competitive cost.

Commentary of banking sector woes

Markets expect RBI governor Urjit Patel to comment on recent bank frauds. Patel recently spoke about the need to arm RBI with more power to adequately regulate state-owned banks. Markets expect Patel to issue similar commentary, which may soothe the nerves of Indian depositors.

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