RBI expected to adopt hawkish outlook

The Reserve Bank of India (RBI) is expected to change its monetary policy outlook from the current neutral stance to a hawkish this week, according to a report.

The Ecoscope report of market-advisory Motilal Oswal identifies the hawkish comments that the Deputy Director of the Reserve Bank of India made in the policy minutes as one of the four key developments that would result in this shift of stance.

"The fear that the government would increase the minimum support prices by 20–25% for kharif crops to meet its budget commitments is another factor causing the change in policy," the report says.

The advisory is of the opinion that oil prices reaching an all-time high of $80/barrel and the weakening of Indian Rupee against the US Dollar are other major developments contributing to the alteration of RBI’s stance.

The minutes of the April meeting suggest that two of the six MPC members have already decided to vote in favour of a 25 bps rate hike.

However, the report argues that the RBI should maintain the neutral stance instead of going for a hike in rates now.

According to the report, apart from the RBI Deputy Director’s comment in the minutes of the policy, none of the other developments warrant the need to adopt a hawkish stance in policy.