Photo: Aniruddha Chowdhury/MintThe monetary policy committee (MPC) meeting contained no spinners, maintaining status quo with a neutral stance as expected. The economy is expected to recover in the subsequent quarters as GST-related disruptions smoothen out and as consumption improves amidst rising rural wages, lower GST tax incidence and expected payouts from State’s implementation of the 7th Central Pay Commission. RBI expects liquidity to remain marginally in surplus before moving towards their long-held target of neutral zone by mid FY2019. With upside risks emanating from fiscal slippage, higher oil prices, higher real wages, sticky core inflation and mean reversion of food prices, we find limited room for any further monetary accommodation. Even as inflation trends higher, MPC may prefer to still maintain a status quo through FY19 given that a sufficiently high real rate provides them adequate headroom to absorb higher inflation.

Source: Mint December 06, 2017 20:26 UTC