Key policy rate rise consistent with tighter monetary conditions in the capital market over the last year
MPC indicated a small upward revision in its forecast for inflation in H2 2018-19 to 4.8% from 4.7%, and indicated inflation for Q1 of 2019-20 at 5%. However, growth of the economy was retained at 7.4% for 2018-19; a slightly higher level of 7.5% was expected in Q1 of 2019-20. For both inflation and growth the risks are evenly balanced, the MPC stated.
Against this backdrop, the MPC chose to continue with its neutral policy stance, but chose to raise the repo rate by 0.25%.
Given the MPC's approach, this could be expected.
Please read my earlier blogs, in particular the March 2018 and February 2018 ones on this subject.
Basically, monetary conditions in the capital market had already tightened last year. This was largely the result of RBI's incorrect signalling - an inexplicable shift from accommodative to neutral monetary policy in February last year even though inflation fell all the way to the sub-2% level by June last year - and now the RBI is moving the policy rate up to be consistent with the market's actions.
MPC indicated a small upward revision in its forecast for inflation in H2 2018-19 to 4.8% from 4.7%, and indicated inflation for Q1 of 2019-20 at 5%. However, growth of the economy was retained at 7.4% for 2018-19; a slightly higher level of 7.5% was expected in Q1 of 2019-20. For both inflation and growth the risks are evenly balanced, the MPC stated.
Against this backdrop, the MPC chose to continue with its neutral policy stance, but chose to raise the repo rate by 0.25%.
Given the MPC's approach, this could be expected.
Please read my earlier blogs, in particular the March 2018 and February 2018 ones on this subject.
Basically, monetary conditions in the capital market had already tightened last year. This was largely the result of RBI's incorrect signalling - an inexplicable shift from accommodative to neutral monetary policy in February last year even though inflation fell all the way to the sub-2% level by June last year - and now the RBI is moving the policy rate up to be consistent with the market's actions.
