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The Economy Observer: RBI keeps rates unchanged; maintains neutral stance

  • The Monetary Policy Committee (MPC) decided to maintain status quo on rates and its policy stance in its fifth bi-monthly monetary policy meeting held today. The decision to hold rates was taken with a majority of 5-1 votes and was in line with market expectations. 
  • As far as the economic forecasts are concerned, the RBI increased its inflation forecast for 2HFY18 slightly to 4.3-4.7% from 4.2-4.6% earlier. However, it maintained its FY18 real GVA growth forecast at 6.7%. The central bank expects a sharp acceleration in growth to 7% in 3Q and further to 7.8% in 4Q, from 6.1% in 2QFY18.
  • We expect inflation to rise towards 5% by March 2018, primarily on account of low base. On the other hand, we expect real GVA to rise more slowly than the RBI's expectations. The combination of higher inflation due to low base and weak growth is unlikely to allow the RBI to change rates in the remaining part of FY18.