RBI's MPC begins discussions, decision on key rate tomorrow

RBI will tomorrow make public the resolution of the MPC on its first bi-monthly monetary policy for the new fiscal, 2018-19, which commenced on April 1.

Reserve Bank of India has maintained a status-quo on the key short-term borrowing rate (repo) in its last three policy meets. The benchmark lending rate was reduced by 0.25 percentage points to 6 per cent last August, bringing it to a 6-year low.

The six-member committee is meeting against the backdrop of government's assertion that both the fiscal deficit as well as the revenue shortfall in 2017-18 will be lower than the upwardly revised estimates given in the Union Budget.

The government has also announced that its market borrowing would be only Rs 2.88 lakh crore in the April-September period of 2018-19 as against Rs 3.72 lakh crore it had borrowed in the corresponding period of the last fiscal, 2017-18, ended on March 31.

The outcome of the MPC meeting is being keenly awaited by stakeholders amidst pressure on RBI to cut interest rates in the wake of declining retail inflation and the need to fuel growth momentum.

Also, Skymet Weather has projected a normal monsoon, indicating good agriculture output and less pressure on prices.

Experts said the central bank will have to do a tightrope walk as globally interest rates are inching upwards.

Last month, the US Federal Reserve raised interest rates by a quarter of a percentage point and signalled that it is on track to raising rates two more times in 2018.

Besides, RBI has to take into consideration the rise in crude oil prices which temporarily touched USD 70 per barrel.

One of key mandates of the RBI is to check inflation.

After surging to a concerning 5.2 per cent in December last year, the headline inflation cooled off to 5.07 per cent in January and further to 4.4 per cent in February.

RBI has been asked by the government to target inflation at 4 per cent, plus or minus 2 per cent, and its rise beyond the comfort zone will put pressure on the central bank not cut interest rate (repo rate).