RBI is meeting now and is set to announce its monetary decision tomorrow at 2.30 pm. Considering the recent growth trajectory and creeping inflation, some believe that RBI may hike rates tomorrow by 25 bps.
Some important parameters:
1)GDP growth in last quarter was buyoant- 7.7% in Q 4 and 6.7% for 2017-18. GDP is expected to be 7.3 to 7.5% for the current fiscal.
2)Fiscal deficit- With great difficulty and deep cut in spending in Feb and March, Govt has managed to keep fiscal deficit at 3.5%.
3)GST collection is averaging below budget estimate of 1.06 lac cr every month. Last month collection was around 95000 Cr.
4)Inflation is expected to average 4.9% for the full fiscal and probably decline to 4.4% in Q 4.
5)Crude import bill has climbed to USD 87.8 bn in 2017-18 as against USD 70 bn in 2016-17.
6)FX reserves has declined by USD 13 bn to USD 412 bn due to RBI intervention.
7)Banking NPA’S is still a worry as PSU banks continue to report deep cuts.
8)Monsoon is expected to be normal and help agri sowing and output.
9)Pvt investment is picking up as Gross Fixed Capital formation was robsut in Q 4 GDP data.
10)Auto sales, Govt funded infrastructure and construction activity are doing well.
RBI has to factor the following : 1) Rise in Crude prices, 2) Fed’s rate hike cycle and balance sheet normalization, 3) FPI outflows from debt and Equity markets, 4) Rising 10 Year Yield.
With all the above balanced, RBI may prefer to wait and could just turn hawkish tomorrow than effecting rate hike in June.