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RBI likely to keep repo rate on hold (The Hindu )

Context:

• The six-member monetary policy committee of the Reserve Bank of India (RBI), is expected to maintain the status quo for the third straight review meeting as retail inflation is hovering close to the central bank’s upper tolerance limit.

Introduction:

• Consumer price index-based inflation or retail inflation — the central bank’s primary yardstick for setting interest rates — was 5.21% in December, just below the 6% upper band mandate of RBI.

Reasons for high inflation:

• Rising food prices was one of the main factors behind the 17- month-high retail inflation.
• Rising oil prices and higher minimum support prices for farmers and slight deviation in the fiscal consolidation path have increased the probability of higher rates in 2018-19.
• Next year’s fiscal deficit target of 3.3% is also under a cloud as revenue projections are seen as optimistic.

Bond yields:

• Bond yields are expected to remain around current levels in the near term but trend towards 7.75% by September 2018.