Here are 10 things you need to know about the RBI policy statement today:
The RBI is likely to change its monetary policy stance to "neutral" - from the existing "calibrated tightening" - but a rate cut cannot be ruled out, say some economists. The current policy stance of the MPC rules out chance of any reduction in key rates. (LIVE market updates)
However, a change in stance to normal, while keeping the rates on hold, will allow the central bank to lower the repo rate, the interest rate at which it lends short-term funds to commercial banks, in its next policy statement due in April.
According to a poll by news agency Reuters published on January 24, two-thirds of 65 economists expect the RBI to hold the repo rate at 6.50 per cent, while most respondents predict the MPC to switch to a neutral stance. Nearly half of respondents expected a 25 basis point rate cut by mid-2019, according to the Reuters poll.
Consumer inflation - which the central bank monitors primarily to formulate its policy - stood at 2.19 per cent in December. That marked the slowest pace of inflation based on CPI or Consumer Price Index recorded since June 2017.
The December data also indicates that the rate of increase in consumer prices has remained within the RBI's medium-term goal of 4 per cent for five months in a row.
"We now expect RBI to change stance in February, but it is likely to remain on a pause mode. The first cut might happen in April 2019, but we believe it will be shallow rate cut cycle," said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India (SBI). "However, we will not be overtly surprised if the RBI delivers a 25 bps (basis points) rate cut on February 7 itself."
Credit ratings agency CARE expects the RBI to adopt a "wait and watch" approach and hold the rates owing to expectations of build-up in inflation in the coming months. The agency mentioned a possible rise in oil prices and an increase in consumer spending in the backdrop of budget announcements among factors that can trigger inflationary pressures.
Today's policy statement comes days after release of the interim Budget for 2019-20. In its last budget before general elections due by May, the government announced an assured income scheme worth Rs 75,000 crore for small farmers and some tax reliefs for the middle class. (What Budget 2019 income tax changes mean for you | Tax gift for "great Indian middle class" as government preps for polls)
The government pegged the fiscal deficit target at 3.4 per cent of gross domestic product (GDP) for financial year 2019-20. Its revised estimate of fiscal deficit for the current financial year also stood a 3.4 per cent, as against the budget estimate (February 2018) of 3.3 per cent.
The RBI had in its December 5 policy review kept both the repo rate and the stance unchanged.
(With agency inputs)