The unchanged RBI Policy

The RBI is also upbeat on growth, alluding as it did to several data points that gave early positive signals of a gradual comeback. Strong consumption indicators like growth in domestic air passenger traffic, foreign tourist arrivals, rising sales of passenger vehicles and a strong upturn in the production of consumer durables are cases in point. The growth in sales of two-wheelers and tractors reflects buoyant rural consumption. Capital goods production registered a 19-month high growth in January, indicative of the likely traction in investment demand. Commercial vehicles sales remain strong. Assessment of overall business sentiment for manufacturing also improved in Q4 FY18 as reflected in the Reserve Bank’s Industrial Outlook Survey. The services PMI moved out of contraction and stabilised in March on a renewed increase in new business and strengthening expectations.
Thus overall GDP growth is expected to make a rebound from 6.6 per cent in FY 18 to 7.4 per cent in FY19. While the overall GDP growth number stays unchanged at 7.4% for FY19 (same as the previous policy), growth is expected to be back ended, with RBI projecting higher growth in the second half of the fiscal compared to the first half.
Then why not nudge the policy stance? While the fine print suggests a dovish outlook, RBI refrained from changing the policy stance from neutral on account of the several imponderables that might rear their heads: An uneven distribution of monsoon, inflationary impact of Minimum Support Price (MSP) hike, fiscal slippage that might show up in the second half, including slippages from state budgets, volatility in crude prices, and impact of HRA (house rent allowance revision) in the states. So the bank stuck to its official stance that future action would be driven by data. In other significant developments RBI has now officially banned all virtual currencies (VCs) in view of their risks and entities regulated by RBI have been barred from providing services to any individual or business entities dealing with or settling VCs.
In sum, the outlook on inflation and growth provides a much needed sentimental relief to the market and would provide financial relief to banks as yields head south. This could partially counter the pain emanating out of elevated provisions on account of NPA and NCLT (national company law tribunal) resolutions. The policy spells a bonanza for the NBFCs as their competitive position only strengthens with lower funding costs.

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