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In line with our expectations, the RBI has kept key policy rates unchanged in its 2nd Bi-monthly Monetary Policy statement of this fiscal. However, the underlying tone of the policy remains accommodative, and would be guided by macro-economic data including the implementation of 7th Pay Commission recommendations, monetary transmission and the monsoons.
RBI projects GDP growth for FY17 at 7.6% and has maintained its inflation target of 5% for the year. With crude oil prices rising over the last couple of months, the RBI highlighted the risk of an upward movement of crude oil on the inflation trajectory for the year. Importance of monetary transmission in the economy was also focused upon and its criticality to support the revival of growth which has been supported by reform measures till date.
We expect interest rates to remain on a declining trend over the coming months. From a demand-supply perspective, we expect RBI to stay accommodative and keep banking system liquidity closer to neutral. Declining interest rates would act as a further trigger to an improvement in the macro-economic scenario of the Indian economy.
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