RBI Monetary Policy 2018: Urjit Patel warns, 'We are at the beginning of a currency war'

The Reserve Bank of India hiked repo rate by 25 basis point to 6.50% compared to the previous 6.25%. This is the second rate hike made by RBI as in previous policy the central bank under leadership of governor Urjit Patel had increased the rate by 25 basis points, which was also the first ever rate hike under Prime Minister Narendra Modi government regime. Consequently, the reverse repo rate under the LAF stands adjusted to 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.75%.

Investment activity remains broadly firm, reassured RBI governor Urjit Patel after announcing a hike in interest rates. He also added, "There is a gradual recovery of south-west monsoon but the sown area of kharif crops lagging." 
   
"The MPC's rate hikes in June and August will only play out in due course in their projections," said RBI deputy governor Viral Acharya. 

According to Patel, there is considerable uncertainty around the impact of MSP schemes and the households expect an uptick in inflation. He further added that global growth has sustained pace but became uneven since the June policy.

While we look at components that make up the headline, the mandate is to get headline CPI inflation to 4 percent, says Urjit Patel.
 
We are at the beginning of a currency war, says RBI governor. He also added that a few months of turbulence are now behind us.
 
Patel further added, investment activity remains broadly firm. There is considerable uncertainty around the impact of MSP schemes.

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The decision of the MPC is consistent with the neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting growth.

In the second bi-monthly resolution of 2018-19, CPI inflation for 2018-19 was projected at 4.8-4.9% in H1 and 4.7% in H2, including the HRA impact for central government employees, with risks tilted to the upside. Excluding the impact of HRA revisions, CPI inflation was projected at 4.6% in H1 and 4.7% in H2.