RBI in the after today came up with first bi-monthly monetary policy for the FY 2018-19. Keeping the rate constant was passed by the vote of 5 to 1.
In line with the market expectation; RBI did not change in its key interest rates. Repo rate and Reserve Repo rate is kept unchanged at 6% and 5.75%, respectively. Marginal standing facility and Bank rate stand constantly at 6.25%. Banking Reserve ratios are also kept constant at 4% for CRR and 19.75% as SLR.
The decision was taken by keeping in mind various factors associated with economies globally and domestically as well. Inflation is the key factor which is being considered while taking any stance over the key interest rates.
Global economies have also gathered momentum in the 1st quarter of the calendar year 2018. With the US economy growing as the labour market has improved, economic activity in the Euro has also remained robust. Japanese economy also improved for the eighth straight quarter till last quarter of 2017.
For the emerging economies, China started the year with a bang with consumption and industrial production showing great strength. Higher commodity prices aided the Brazilian economy to gain momentum. South Africa and the Russian economy gathered pace with improved data of business confidence and industrial production, respectively.
Looking at the PMI number, Manufacturing PMI continued to extend for the eighth consecutive month. Further growth of the service sector also accelerated aided by the pickup in activity in trade, hotels, transport and communication.
The central statistic office came up with its second estimates of GDP has revised the percentage of GDP mark upward to 6.6% from the previous estimate of 6.5%. However, the growth rate is much lower than the previous year’s GDP of 7.1%. Current scenario depicts a different story with rising global demand thus rising import, slower than expected rise in import coupled with a boost in investment has pushed RBI to revised GDP growth estimate higher to 7.4% in 2018-19 from 6.6% projected for 2017-18. Further half-yearly, H1 for 2018-19 is expected to grow in a range of 7.3%-7.4% and for H2 in a range of 7.3%-7.6%.
Turning the spotlight to price rise, Inflation decelerated to 4.4% in February from the high of 5.1% in January which is completely in the vicinity of RBI’s inflation range. Fall in prices of food, fuel and other commodities like onions, tomatoes, oil, spices, cereals milk etc triggered the fall in inflation. In the current policy meet, RBI has revised the inflation for Q4 of 2017-18 down at 4.5%, which was earlier projected at 5.1%. in the 6th bi-monthly policy meet of 2017-18, for 2018-19, RBI has pegged inflation for H1 of 2018-19 at 5.1%-5.6% and for H2, is projected to come down at 4.5%-4.6%. Taking the current scenario in mind, RBI has estimated inflation for HI2018-19 to 4.7%-5.1% and for H2 at 4.4%.
Credit policy has been welcomed by the market with open arms, as Nifty rose to the high of 10330.60 from the day’s low of 10281.80 and gained over 1.98% from the last close of 10128.40. Bank NIFTY also gained over 630 points from the last close of 24129.50.
However, the dawn of Friday will decide, whether the market will be able to sustain these levels.