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17
Aug 2018
 |
RBI
(The Total Investment & Insurance Solutions)
The RBI
hiked its key lending rate by 25 basis points for the second time in a row
saying upside risks to inflation remain elevated in view of factors such as
minimum support price (MSP) for farmers, oil price, monsoon, and GST, minutes
of the August Monetary Policy Committee (MPC) meeting released on Thursday
showed.
Noting
that the Reserve Bank's six-member MPC had decided to hike the central bank's
short term lending rate, or repo, to 6.50 per cent with five votes in favour
and one external member against, the minutes of the review meeting cited the
risks to inflation.
"Uncertainty
around domestic inflation needs to be carefully monitored in the coming months.
In addition, recent global developments raise some concerns. Rising trade
protectionism poses a grave risk to near-term and long-term global growth
prospects by adversely impacting investment, disrupting global supply chains
and hampering productivity," it said.
"Geopolitical
tensions and elevated oil prices continue to be the other sources of risk to
global growth," it added.
The MPC
noted that domestic economic activity has continued to sustain momentum and the
output gap has virtually closed, while increased foreign direct investment
(FDI) flows and continued buoyant domestic capital market conditions augur well
for investment activity.
According
to RBI Deputy Governor Viral Acharya, who voted for the rate hike, the
persistence of the core consumer price index (CPI), or retail inflation, is a
worrisome factor.
"Headline
inflation -- even after adjusting for the statistical effect of the Centre's
increase in house rent allowances (HRA) -- has remained above 4 per cent, the
MPC's mandated target headline inflation rate, for seven out of the past eight
months, with a mean as well as median of slightly over 4.5 per cent,"
Acharya said.
Noting
that it would be prudent to prepare for elevated and volatile oil prices, he
said that while retail inflation may soften in the July-September period, it
could resume an upward trajectory during October-March.
According
to RBI Governor Urjit Patel, while retail inflation had risen for the third
consecutive month in June, domestic growth impulses continue to be reasonably
strong.
"The
normal monsoon so far augurs well for the farm sector. Investment activity has
remained broadly positive. The manufacturing sector has continued to be
robust," he said.
"Overall,
economic activity appears to be buoyant with GDP growth for 2018-19 projected
at 7.4 per cent, same as in the June policy; and 7.5 per cent for Q1:2019-20.
"As
inflation risks have continued to be elevated, I vote for an increase in the
policy repo rate by 25 basis points. However, in view of several uncertainties
that are present, I maintain the neutral stance of monetary policy," he
added.
The RBI
maintained its 'neutral' stance in the August policy review, as it has done
over five previous bi-monthly policy reviews, which allows it to move either
way on rates.
Official
data earlier this week showed that lower food prices eased July's retail
inflation to 4.17 per cent from 4.92 per cent in June even as it continued to
rule over the RBI's medium-term inflation target of 4 per cent.The Total Investment & Insurance
Solutions
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