EcoScope Back
The Economy Observer: Is this the end of monetary easing cycle?

  • In line with market consensus, the Monetary Policy Committee (MPC) decided to keep the policy rates on hold today.The decision was taken with a majority of 5-1 votes.
  • Interestingly, while the MPC kept its inflation projection for FY18 broadly unchanged (revised slightly from 4-4.5% to4.2-4.6% for 2HFY18), the GVA growth forecast was cut from 7.3% to 6.7%.
  • We believe that while inflation is likely to remain in line with the RBI's forecasts, there is still a downside risk to its revised GVA growth forecasts. Consequently, although there is    a window to cut interest rates, we are highly doubtful ifeven slower growth would nudge the cautious RBI. Accordingly, the monetary easing cycle may have ended in India, in our view.
In its fourth Bi-monthly Monetary Policy held today,the Monetary Policy Committee (MPC) kept its policy rates unchanged- the repo rate at 6%, the reverse repo rate at 5.75% and the marginal standing facility (MSF) rate at 6.25%. (Exhibit 1). The decision to keep rates on hold was inline with market expectations. We, however, had argued that there was sufficient room for the RBI to cut rates in its today’s meeting, considering the sharp weakness in economic activity. The decision to hold rates was taken with a majority of 5-1 votes, with Dr Ravindra Dholakia voting for a cut of at least25bp.