RBI monetary policy starts tomorrow. Here are risks that the central bank must keep in mind
RBI likely to maintain policy rate at 6.5% and keep liquidity tight as global and domestic risks increase, says Suvodeep Rakshit of Kotak Institutional Equities.
As the Reserve Bank of India (RBI) monetary policy committee (MPC) meets for the October policy, global and domestic risks have increased from the August policy. Domestic inflation has seen a spike up to 7.4% in July and subsequently fallen back to 6.8% in August and possibly move towards 5.5% by December. However, it remains well above the 4% target and will likely remain so for at least few more quarters. GDP growth remains quite stable without any near-term risks of dislocation even as the global slowdown risks remain. External sector risks have increased with crude oil prices increasing by more than 10% with continuing upside bias. Along with crude prices, dollar has been strong imparting a depreciation bias to the INR.