Was the RBI Wrong in Holding Interest Rates?

Wed, 14 Jun Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

Just last week the Reserve Bank of India (RBI), held interest rates in its latest monetary policy review, citing an uncertain inflation outlook.

However, with macroeconomic data coming in, the same might not hold true for the months to come.

Data released by the Central Statistics Office showed the index of industrial production (IIP) slowed marginally to 3.1% in April from 3.8% a month ago as mining production and electricity generation eased. Retail price inflation, as measured by the consumer price index (CPI), slowed to 2.18% in May from 2.99% a month ago as food prices started falling from their year-ago level.

A lower inflation rate, coupled with slowing industrial activity. can indicate a slowdown in demand and weaker economic activity.

Slower industrial output growth and lower inflation may put pressure on the Reserve Bank of India (RBI) to change its policy stance to accommodative from neutral

The inflation number is also well in the range of the RBI's forecast for the current financial year, opening scope for a rate cut by the apex bank.

After the RBI decided to keep its key interest rates unchanged, chief economic adviser Arvind Subramanian publicly disagreed with the central bank, suggesting that softening inflation and slowing economic growth warranted a substantial monetary policy easing.

However, in its monetary policy review, RBI said the easing of inflation, excluding food and fuel, may be transient in view of its underlying stickiness in a situation of rising rural wage growth and strong consumption demand.

While the government is busy coining slogans and marketing them to lift the sentiments, RBI seems to have somewhat different opinion. And it intends to communicate it.

As per the policy statement - The current state of the economy underscores the need to revive private investment, restore banking sector health and remove infrastructural bottlenecks. Monetary policy can play a more effective role only when these factors are in place.

Thus the RBI made it clear it would not adhere to the whims of the government, and take a myopic view just to fulfill the government's agenda.

But with industrial growth slowing down, and inflation at five-year lows, economic activity seems to be slowing down.

However, the RBI has a positive outlook going forward. The business expectations index generated by the RBI's April round of the Industrial Outlook Survey reflects optimism in the manufacturing sector in the second quarter of 2017-18, driven by expectations of rising rural demand, exports and profit margins.

Another catalyst, driving economic activity would be the onset of the monsoon. The Indian Meteorological Department (IMD) has forecast that the June-to-September south-west monsoon will bring 98% of the normal or long-period (50-year) average rain.

An early onset of the annual south-west monsoon and prospects of ample rain have led to higher-than-normal sowing of rain-fed kharif crops across India, according to data released by the agriculture ministry.

This could go a long way in spurring demand and growth in the rural areas.

On the manufacturing side, increased government expenditure and pick-up in private sector investment could provide the stimulus to the industrial sector.

It remains to be seen how the RBI takes into account the macroeconomic data coming in. If the economic activity fails to pick up over the next few months, an interest rate cut may well be on the cards.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Top Gainers TodayTop Gainers over 1-WeekTop Gainers over 1-MonthTop Gainers over 1-YearTop Gainers over 3-YrsTop Gainers over 5-YrsTop Losers TodayTop Losers over 1-WeekTop Losers over 1-MonthTop Losers over 1-YearTop Losers over 3-YrsTop Losers over 5-YrsOnly BuyersOnly SellersMost Active StocksMost Popular Stocks52 Week High Stocks52 Week Low Stocks

INDICESBSE (Rs 0 to 1)BSE (Rs 1 to 2)BSE (Rs 2 to 4)BSE (Rs 4 to 10)BSE (Rs 10 to 20)BSE (Above Rs 20)BSE - AllBSE-30BSE-100BSE-200BSE-500BSE AutoBSE BankexBSE Capital GoodsBSE Consumer DurablesBSE FMCGBSE HealthcareBSE ITBSE MetalBSE Oil & GasBSE PSUBSE TeckBSE RealtyBSE PowerBSE A GroupBSE B GroupBSE Mid-CapBSE Small-CapBSE Basic MaterialsBSE Consumer DiscretionaryBSE IndustrialsBSE UtilitiesBSE Sensex 50BSE Sensex Next 50BSE Bharat 22BSE 150 MidCapBSE 250 SmallCapBSE 250 LargeMidCapBSE 400 MidSmallCapBSE AllCapBSE LargeCapBSE SmallCap SelectBSE 100 LargeCap TMCBSE InfraBSE ManufacturingBSE CPSEBSE Private BankBSE Diversified FinancialsBSE MomentumBSE Low VolatilityBSE QualityBSE Enhanced ValueBSE Divident StabilityS&P BSE IPOBSE SMEIPOBSE 100 ESGBSE CarbonexBSE GreenexNSE (Rs 0 to 10)NSE (Rs 10 to 20)NSE (Above Rs 20)NSE - AllNSE-50NSE ITNSE Nifty Midcap 50NSE JR. NiftyNSE Bank NiftyNIFTY Next 50NIFTY 100NIFTY 200NIFTY 500NIFTY MidCap 100NIFTY SmallCap 250NIFTY SmallCap 50NIFTY SmallCap 100NIFTY LargeMidCap 250NIFTY MidSmallCap 400NIFTY AutoNIFTY Consumer DurablesNIFTY FinanceNIFTY FMCGNIFTY MediaNIFTY MetalNIFTY PharmaNIFTY Private BankNIFTY PSU BankNIFTY RealtyNIFTY Oil & GasNIFTY SME EmergeNIFTY CommoditiesNIFTY CPSENIFTY EnergyNIFTY India ConsumptionNIFTY InfraNIFTY MNCNIFTY PSENIFTY Serv SectorNIFTY100 Liquid 15NIFTY Midcap Liquid 15NIFTY Midcap 150 Quality 50NIFTY50 Equal WeightNIFTY100 Equal WeightNIFTY100 Low Volatility 30NIFTY100 Alpha 30NIFTY Alpha 50NIFTY Dividend Opportunities 50NIFTY High Beta 50NIFTY Low Volatility 50NIFTY200 Quality 30NIFTY 500 Value 50NIFTY 100 Quality 30SECTORSAgricultureAirlinesAluminiumAsset Management CompaniesAutomobilesAuto AncillariesBanks (Private)Banks (PSU)BankingCementChemicalsDefenceDiagnosticsDronesEngineeringElectric VehicleElectric Vehicle BatteryEnergy SourcesESGEthanolFertilizersFintechFMCGFoodGreen HydrogenHotelsInfrastructureInsuranceInvestment and FinanceInvITIT (Large)IT (Others)LogisticsMediaMetalMiningIndia's Big Tech StocksIndian PharmaMNC PharmaPSUPaintPaperPlasticPowerRating AgenciesReal EstateREITsRenewable EnergyRetailingSemiconductorShippingSteelSugarSupply ChainTelecomTextilesTravel Support Services

10 results 25 results 50 results 100 results All results

Indian Share Market Update: Top Gainers and Losers