Skip to main content

RBI may maintain status quo on rates for entire 2018: Experts

RBI may maintain status quo on rates for entire 2018: Experts
The Reserve Bank of India (RBI) is likely to keep the key policy rates unchanged in 2018, despite bond yields rising sharply in the past three months.A rate hike might not come in the entire calendar year, economists and bond dealers said, adding a rate cut was not a possibility either
The sharp upward movement in yields started in October last year, when the 10 year bond yields stood at around 6.65 per cent.The yields are now at 7.33 per cent. In the same period, the one year overnight index swap (OIS), an instrument used to hedge rates, rose from 6.09 per cent to 6.46 per cent. In a theoretical sense,arise in the OIS rate might indicate rate hikes, but this time the OIS movement was directly influenced by the rise in yields
“It is very difficult for the OIS to remain undisturbed when the yields are rising so much.Base case suggests there would be no hike in 2018.The rise in (bond) yields is more about supply and the possibility that the February budget, being an election budget, would be expansionary in nature,” said Ananth Narayan,asenior bond market expert.
While the introduction of a new 10 year benchmark paper has also pushed up yields, Narayan said some of the yield movement cannot be justified without a rate hike expectation.As such, even as the market is not expecting a rate hike immediately.
“The chances of a rate hike for almost all of 2018 are relatively low.Growth impulses, while improving, remain fragile, and a rate hike will be disruptive to interest costs.Even prospects of a change to a tightening stance remain limited, since markets are already sensitised to the chances of a rate hike,” said Saugata Bhattacharya, chief economist, Axis Bank Ltd.
The minutes of the last monetary policy meeting showed that except Ravindra Dholakia, an external member, the other five members of the monetary policy committee voted for the status quo on policy rates.“At the next policy meeting (on 7 February), we expect the same five MPC members to vote to retain the status quo again.
But we see a risk that Ravindra Dholakia flips his vote to maintaining the status quo as well because of higher inflation (in November and December),” wrote Nomura in a report dated December 20. “We expect policy rates to remain unchanged in 2018, despite higher inflation, recovering growth and elevated oil prices, mainly due to an ample real rate cushion.”
No Hike In Sight
Economists, bond dealers say RBI may not hike rates in the entire calendar year This is despite bond yields rising sharply in past 3 mths While introduction of a new 10 year benchmark paper has pushed up yields, experts feel some of the yield movement can´t be justified without expectation of a rate hike
The  Business Standard, New Delhi, 5th January 2018


Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Firms with sales below Rs.50 crore out of ambit

The tax department has reiterated that the PoEM rules, which require foreign firms to pay taxes in India if the effective control is here, will not apply to companies withaturnover of Rs.50 crore or less inafinancial year. Last month, the tax department had come out with the longawaited Place of Effective Management (PoEM) rules, which require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes if their businesses are effectively controlled by Indians. Then the rules did not setathreshold above which they were to apply. However, the accompanying press release states that the rules will not apply to companies withaturnover of up to Rs.50 crore inayear. That created confusion whether the threshold will be adhered to. Inacircular to clarify things, the Central Board of Direct Taxes (CBDT) said the provision "shall not apply toacompany havingaturnover or gross receipts of ~50 crore or less inafinancial year".

PoEM rules essentially target shell …