MPC-led policy may be dovish

Background: Monetary Policy Committee (MPC), RBI, Monetary policy, Repo rate, Retail inflation, Index of Industrial Production (IIP).

  • With investors now looking ahead to the Reserve Bank of India’s October 4 monetary policy review, which will be a first for both the Governor and the newly constituted Monetary Policy Committee, economists are divided over the likely outcome, opining that there are strong grounds for both cutting interest rates, as well as for maintaining the status quo.
  • RBI Governor Urjit Patel is expected to announce the interest rate decision based on the majority view in the six-member MPC. Patel (the panel’s chairman) will have the casting vote in case of a tie.
  • India’s industrial output slowed in July, with the Index of Industrial Production contracting 2.4 percent. Data also showed retail inflation slowed significantly with CPI-based price gains easing to 5.05 percent in August.
  • The RBI has cut the repo rate by 150 bps since January 2015 to 6.5 percent. However, there are factors which could hinder further monetary easing.

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