RBI likely to keep its repo rate unchanged - TDS

In view of analysts at TD Securities, at the Reserve Bank of India’s sixth bi-monthly monetary policy meeting for 2018-19 scheduled for Thursday 7th February, they are expecting the central bank to keep its repo rate unchanged at 6.50% but change its stance to “neutral” from “calibrated tightening”.

Key Quotes

“While there is a non-insignificant risk of a rate cut under new governor Das, we think it may be premature for the RBI to ease at this time.”

“This will be the first RBI meeting under Governor Shaktikanta Das, who being a former government official, will be cognisant of any political pressure to ease. Prime Minister Modi’s ruling BJP goes into the election on a weaker footing especially given the softening in activity.”

“In this respect any easing from the RBI will be welcome news for the government but may be viewed by the market as giving into pressure. In any case whether a rate cut or government support for the rural sector will be sufficient to boost growth ahead of elections is doubtful.”

“Nonetheless, the RBI is under pressure to transfer funds via an interim dividend to the government ahead of May’s elections. Reportedly this is being considered at the post-Budget meeting with the finance minister on February 9. There is speculation that the RBI will cough up around $5.6bn to help plug some of the government’s revenue short fall. The government is also pushing the RBI to ease lending and capital rules for banks, while providing more liquidity to shadow banks.”