RBI monetary policy: Caution ahead
Financial markets will look forward to the assessment of the economic situation by the monetary policy committee (MPC) of the Reserve Bank of India (RBI), as most analysts do not expect the committee to change policy rates this week. Although inflation in the January-March quarter is likely to have remained softer than the 5.1% projected by RBI, it is expected to move up in the coming months due to the base effect and a pick-up in economic activity.
Further, the fixing of minimum support price (MSP) at 50% above cost and ensuring that all farmers get the MSP, as promised in the Union budget, could significantly push up food prices.
As this newspaper has reported, these measures could lift farm-gate prices by 15%, and its transmission to the retail level would significantly affect consumer price inflation. Higher spending in the farm sector would also have fiscal implications.
Given these policy uncertainties and the fact that interest rates are firming up in global markets, it is likely that the MPC would maintain a cautious stance.