All eyes are on Shaktikanta Das ahead of the Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) meet on Thursday. It is the first MPC meeting under Das, who took charge in December 2018 following the sudden exit of Urjit Patel. It is widely expected that the Central Bank will keep its key lending rates (repo) unchanged at 6.5 per cent due to fiscal challenges and rising oil prices. However, industry sources also say that it may change its stance from ‘calibrated tightening’ to ‘neutral’ on low inflation. The RBI maintained status quo on the repo rate in its last three bi-monthly policy reviews after raising the rate twice by 25 basis points each in the fiscal. In its previous monetary policy review in December 2018, the RBI had kept interest rates unchanged but held out a promise to cut them if the upside risks to the inflation do not materialise.
Deviating from the practice of releasing the resolution of MPC in afternoon, the RBI will place it on its website at 11.45 am on February 7. The government has mandated the RBI to contain retail (consumer price index-based) inflation at 4 per cent (+,- 2 per cent). Continued decline in food prices pulled down retail inflation to an 18-month low of 2.19 per cent in December 2018. The divergence in consumer and core inflation is a case in point. Also, India needs to be dovish as private investments have lowered because of developments in the international markets such as US-China trade and Brexit.