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RBI unlikely to reduce interest rates in monetary policy review

New Delhi: Against the backdrop of hardening global crude oil prices, the Reserve Bank of India is unlikely to yield to the India Inc's pressure for a benign monetary policy stance by keeping policy rates unchanged in its first monetary policy review of 2018-19. The Monetary policy would be announced on Thursday.

Moreover, this is the first monetary policy announcement after the Budget 2018. Reportedly the budget has slightly deviated from the fiscal consolidation roadmap.

The six-member Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, is to meet on April 4 and 5.

Meanwhile, the Reserve Bank of India (RBI) is under pressure to cut interest rates in the wake of declining retail inflation and the need to fuel growth momentum.

Nonetheless, the RBI will have to do a tightrope walk as global interest rates are inching upwards. Last month, the US Federal Reserve raised interest rates by a quarter of a percentage point and signalled that it is on track to raise rates two more times in 2018.

Furthermore, the RBI has to take into consideration the rise in crude oil prices which temporarily touched USD 70 per barrel. Industry body Ficci has pitched for a benign stance in the monetary policy for strengthening the revival signs in the economy.

"Over the last few months, the signs of economic recovery are visible, but there is a need to further push the growth levers to see a complete turnaround in manufacturing and enable investments to reach full scale," the industry chamber said.

According to Kotak Mahindra Life Insurance fund manager Kunal Shah, MPC committee will highlight risks of inflation inching towards 5 percent mark in 2018-19 especially due to MSP hikes and gradual closing of the output gap.

MPC members could take some comfort if monsoon performance is good and prices are seen at moderate levels.

"We think MPC will only be able to adopt hawkish stance if inflation surprises towards 5.5 percent by year-end and likelihood of which are minimal today," he said.

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