RBI monetary policy meet begins today, From rupee to fuel prices, top 5 issues MPC should take up

RBI monetary policy meet begins today, From rupee to fuel prices, top 5 issues MPC should take up

India News

The fourth monetary policy committee (MPC) meeting of the Reserve Bank of India (RBI) has begun today amid concerns over falling rupee and widening current account deficit (CAD), with top economists predicting a 25 basis points hike in repo rate for the third time in a row.The central bank had hiked interest rates in June and August MPC meetings by 25 basis points each citing upward risks to inflation and volatility in crude oil prices. Between the last MPC meeting and now, the economic situation has become more intense due to the sharp decline in the rupee, besides high crude oil prices.Tumbling Rupee: As the rupee continues to be Asia’s worst performing currency and has tumbled nearly 15% this year, the rate hike seems inevitable. “Some would say it (rate hike) could have come sooner … it probably would have been a bit more beneficial. But better now than never,” Radhika Rao, Economist, DBS told Reuters.Liquidity deficit: Since primary liquidity is currently in deficit mode, injection of liquidity through OMO would not create any negative implication for currency also unlike 2013, when the system was in liquidity surplus mode. The markets and the regulator need to clearly understand this dichotomy and thus do frequent OMOs to calm the nerves, SBI said in its EcoWrap note.Petrol and diesel prices: With petrol and diesel prices moving up, there is a strong expectation that inflation will also move up. So, they (RBI) may take a pre-emptive action, Union Bank of India managing director and chief executive Rajkiran Rai G told PTI.Rising US rates: The rising US rates and the intent to effect many more rate hikes would also be a pointer for our policy makers. Hence it seems like the stage is set for yet another rate hike, Lakshmi Iyer of Kotak Mahindra Asset Management Company told FE Online.IL&FS default: The recent default by Infrastructure Leasing & Financial Services (IL&FS) has led to rise in refinancing pressure, which the RBI is also likely to take into account. “The default has led to a rise in corporate spreads and increases the refinancing pressure on domestic financial institutions at a time when our economist expects the RBI to hike at its October meeting,” Morgan Stanley said in a report.
Courtesy : Financial Express