RBI Could Bring Some Cheer With Softer Tone. Decision Today

The Reserve Bank of India or RBI could indicate a dovish tilt in its monetary policy stance while leaving interest rates unchanged, according to economists. The RBI will announce its policy review at 2:30 pm later in the day. A Reuters poll showed 56 of 60 analysts expect the RBI's monetary policy committee to keep its repo rate unchanged at a 6-1/2 year low of 6.25 per cent for a fourth meeting in a row. What analysts and investors are looking for this time is a less hawkish policy statement to reflect reduced fears of inflationary pressures. "We don't expect any change in the official neutral stance but we do expect RBI to tone down its hawkishness compared to the April and February policy statements," said Siddhartha Sanyal, chief India economist at Barclays. Here are 10 things to know: 1) Notching its lowest annual rate in at least five years, consumer price inflation slowed to 2.99 per cent in April from 3.89 per cent in March, just below the RBI's target of 4.0 per cent. Consumer price inflation data for May will be released next week. 2) Meanwhile, gross domestic product grew 6.1 per cent in January-March, down from 7 per cent the previous quarter, to post its slowest growth rate in more than two years. 3) Economists see the room opening up for the RBI in the future to cut rates. "We certainly expect the apex bank to acknowledge a softer growth-inflation mix and hence foresee a dovish tilt in the monetary stance. We also see good likelihood of rate cuts over ensuing 6-9 months," economists from domestic brokerage firm Edelweiss said in a report. 4) Monsoon rains, however, arrived ahead of schedule this month and are forecast to be above-average, and government has mostly kept the GST rates in line with the existing tax rates. 5) A 5 per cent rally in the rupee against the dollar this year could further ease inflation, while global commodity prices have eased. 6) Investors have begun pricing in a softer tone from the RBI, with benchmark 10-year bond yields down about 35 basis points since hitting an over 7-month high on May 2. 7) This is big change from until a few weeks ago, when bond market investors were on guard for a possible future increase in interest rates after the RBI warned of "upside risks" to inflation at its last policy meeting in April. 8) The central bank had changed its monetary policy to "neutral" from "accommodative" in February, leaving it open to raise, or lower, rates in months ahead. 9) Investors' uncertainty over the RBI's stance was heightened by the release of minutes from the April meeting of the monetary policy committee which showed two of its six members had proposed rate hikes, before the committee ultimately voted 6-0 to leave rates unchanged. 10) The RBI had justified its hawkish stance citing the impact of planned pay (allowance) hikes for government employees and the introduction of a nationwide goods and service tax (GST), as well as fears of a weaker-than-expected monsoon.

RBI Could Bring Some Cheer With Softer Tone. Decision Today

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