Will the June 7 RBI monetary policy meet witness rate cut? Here's what might happen

In its bi-monthly monetary policy announcement, which will be held on June 7, the Reserve Bank of India (RBI)is expected to maintain the status quo on the key policy rates.

However, Finance Minister Arun Jaitley in an interview to CNBC-TV18 said that he would like the MPC to reduce the policy rates. He said that inflation has stayed under control for a long time and is expected to remain under control in the near future.

He further elaborated that the equilibrium between crude prices and shale gas prices will ensure that oil prices do not go through the roof and will remain in a range that is affordable by the country.

He said that given the current set of indicators, any Finance Minister would want the RBI to cut rates and so would the private sector.
 
The repo rate was kept unchanged at 6.25 per cent in the February MPC meet. Experts believe that this time also, it is highly unlikely for the Central bank's monetary policy committee (MPC) to change the existing rates.

Repo rate is the rate at which banks borrow from the RBI to meet short-term funding requirements.

Why a rate cut is highly unlikely?
The retail inflation dropped to 2.99 per cent year-on-year in April from 3.89 per cent in March. The consensus estimate for April retail inflation was around 3.3 per cent.

Likewise, Wholesale Price Index(WPI) inflation has also come down to a 4-month low of 3.9 per cent in April 2017.

The above numbers are likely not enough to make the Central Bank move from its current stand. In an earlier policy meet in February this year, the RBI had changed its stance from 'Accommodative' to 'Neutral'.

The change of stance implied that the present rate cycle has peaked and there is little space for an incremental fall in interest rates, rooting out any possibility of rate cuts in the near future.

Impact of Goods and Services Tax Bill
The RBI would also like to wait and observe the impact of Goods and Services Tax Bill on the country's economy. The Bill in all likelihood would be implemented from July 1.

ALSO READ: Tax rates under GST: The gains and losses for the Indian middle class

Once implemented, the change of prices in all the quarters would be closely studied and by the next policy meet in August, the six-member policy committee would get a clear economic picture.

Impact on investments
Analysts believe that with no change in numbers, those who are looking to apply for home loan would still gain. In light of recent reduction of home loan interest rates by SBI, ICICI and HDFC, the banks have already started to pass on the advantages of lower cost of funds to customers.  

However, Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments believed Agricultural, fertilizers and rural focused stocks are also a safe bet.   

"Quarterly numbers have been better than expected. Hence, we believe market to remain volatile with positive biasness ahead of RBI monetary policy. We advise investors to make their position in Agricultural , fertilizers and rural focused stocks", he said.

Conclusion:
We will soon know what the Central Bank's MPC decides. But going on with the onset of its previous meet in February, economists believe that any surprise from the RBI is highly unlikely. However, the implementation of GST and the monsoons could lead to a change its stance in its third meeting which is scheduled in August.

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