RBI could interject with a 25 basis points rate hike…
Most reports coming out ahead of the June credit policy appear to be hinting at a status quo on rates. The RBI has been expressing concerns over prices but the Monetary Policy Committee (MPC) has generally veered towards a status quo on rates. However, June policy could be different for a variety of reasons. In fact, June could see the first rate hike by the RBI, although it may be just about 25 basis points. Here is why…
Read the MPC’s lips…
The best way to get a perspective of the MPC’s thinking is to juxtapose the MPC minutes over the last 4 monetary policies. One thing comes out very clearly that there has been a gradual hawkishness that is creeping into the outlook of all the MPC members. While only Dr. Patra has been calling for a rate hike, other members have already started expressing concerns over the rising food inflation as well as dearer crude oil prices. Since the last monetary policy in April, the price of Brent Crude has gone up by past the $80/bbl mark. With 75% dependence on imported crude oil, this kind of a sharp rise in oil prices has the potential to import inflation from abroad and also result in downstream inflation. With supply from Iran constrained post the US sanctions and OPEC supply cuts continuing, the rising oil demand is putting pressure on oil prices. $100/bbl is not ruled out and that could be one reason for the RBI to seriously consider a rate hike in June.
Caution ahead of Kharif…
The Met Department has already predicted a normal monsoon although the spread of rainfall will only be evident by June. However, the bigger issue is that the assured Minimum Support Price (MSP) at 150% of cost of production will have two effects.
ConversionConversion EmoticonEmoticon