RBI Money Policy in a while: Five Things That Can Matter To You
The Reserve Bank of India (RBI) will hold its third bimonthly money policy review of the year on Tuesday.
The policy meet will be the penultimate one to be chaired by RBI Governor Raghuram Rajan.
With the investing community glued to the policy statement and, more importantly, on the RBI press conference, here are the five things you should watch out for.
1) Rate cut guidance: The Reserve Bank of India (RBI) is widely expected to keep policy rates unchanged after cutting them by 25 basis points (bps) in April to 6.5%. “Status quo will be maintained because the governor would like to see what the us Fed decides and how the monsoon turns up,” said Charan Singh, ED, UCO Bank.
2) Rexit or not? The biggest question staring at the Reserve Bank chair will be whether Rajan wants to stay for a second as the governor or leave for some new assignment.
A recent report in the Bengali daily, Anand Bazaar Patrika, claimed Rajan may decline the Modi government’s offer to extend his stay at the helm of RBI.
It will be, therefore, crucial to know what Rajan has on his mind, though he could pretty well decline to comment on the question leaving us biting our nails till August.
3) Inflation outlook: The CPI inflation ticked higher in April rising above RBI’s medium-term target of 5 per cent at 5.29 per cent. The sudden rise in inflation is seen as a contributory factor in RBI’s expected status quo on policy rates.
In such a scenario, RBI’s guidance of how the inflation will pan out in the face of double-digit food inflation and delayed sowing of kharif crop will keep the policy hawks hawks glued.
4) Views on fourth quarter GDP numbers: India grew at 7.9 per cent during the March quarter of FY2016. But in an environment of open distrust in the Central Statistics Organisation’s data use methodology, the man who called India a ‘one-eyed king’ will be pressured to give his view on the growth scenario and the efficacy of the methodology itself.
5) Asset quality issues: The public sector lenders reported a combined loss in excess of Rs 15,000 crore in the March quarter with SBI reporting a 66 per cent decline in profit.
The market will look for further cues on the state of the NPA problem in the economy and Rajan’s assessment of the AQR situation.
Most banks have claimed that they have taken all the pain of provisioning in the quarter gone by and, therefore, RBI’s view of the situation will be something to watch out for.
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