The Monetary Policy Committee (MPC) will be announcing its second bi-monthly policy review for 2018-19 on Wednesday.

Credit rating agency CARE expects the six-member MPC to keep the policy repo rate unchanged at 6%.

“With no additional data point on inflation, inflationary expectations would play an important role. These would only be in the upward direction. Therefore, there would be no rate change this time,” said the research note by CARE Ratings.

However, the report expects that the tone will be hawkish and the rates night go up in coming months.

The RBI’s credit policy comes at an important time when the perspective of the economic situation goes beyond the CPI inflation number which is officially targeted.

According to the report, The ten years’ GSec yields have moved up quite sharply since the last policy while some banks have started increasing their lending rates too.

The rupee has also started depreciating and globally too, it looks like Fed will go in for another rate hike, said the report.

Foreign portfolio investment (FPI) flows have already witnessed the impact under these conditions. FPIs have been moving out of the country in the last two months in both equity and debt segment.

Factors To Be Considered For The Policy Review

Inflation has been relatively higher with CPI inflation being 4.6% and WPI inflation 3.2% in April 2018. The inflation is likely to go up further with rising global crude oil prices.

The rupee has come under pressure and instead of a rupee appreciation, which was the norm sometime back; the level of depreciation is being spoken of in the market.

FPIs have been moving out of the country in the last two months and what is curious is that it is negative in both the equity and debt segments.

Therefore, there is a concern for the RBI considering that the limits and tenures of investment for FPIs have been relaxed by the central bank to enable higher flows.

First Published:Jun 5, 2018 12:54 PM IST