The Reserve Bank of India (RBI) could take a more hawkish tone starting as early as June despite easing inflation, minutes of the monetary policy committee’s (MPC) meeting that took place this month showed. Indian bond yields spiked while the rupee dropped to its lowest in more than a year on Friday after minutes of the monetary policy committee’s last meeting suggested it was likely to take a more hawkish stance - starting as early as June.


The tenth meeting of the Monetary Policy Committee (MPC), constituted under section 45ZB of the amended Reserve Bank of India Act, 1934, was held on April 4 and 5, 2018 at the Reserve Bank of India, Mumbai.

 According to Section 45ZL of the amended Reserve Bank of India Act, 1934, the Reserve Bank shall publish, on the fourteenth day after every meeting of the Monetary Policy Committee, the minutes of the proceedings of the meeting which shall include the following, namely:–

  1. the resolution adopted at the meeting of the Monetary Policy Committee;

  2. the vote of each member of the Monetary Policy Committee, ascribed to such member, on the resolution adopted in the said meeting; and

  3. the statement of each member of the Monetary Policy Committee under sub-section (11) of section 45ZI on the resolution adopted in the said meeting.


On the basis of an assessment of the current and evolving macroeconomic situation1 at its meeting today, the Monetary Policy Committee (MPC) decided to:

  • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.0 per cent.

Consequently, the reverse repo rate under the LAF remains at 5.75 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25 per cent.

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 per cent within a band of +/- 2 per cent, while supporting growth. The main considerations underlying the decision are set out in the statement below.


 Financial markets turned volatile in February-March, triggered by uncertainty regarding the pace of normalisation of US monetary policy, and concerns surrounding global trade. Equity markets globally have shed most of the gains of the previous quarter in a heavy sell off in February-March, caused by optimistic US job reports and the US imposition of new tariffs on Chinese goods. Yields in the US traded sideways on weaker than expected inflation pressures and the anticipated rate hike by the Fed. Yields in other major AEs have fallen, while among EMEs, they have remained divergent on country-specific factors. In currency markets, the US dollar, which recovered somewhat in early March on an optimistic outlook of the economy, shed most of its gains in the latter part of the month on a less hawkish stance of the Fed and on anxieties surrounding a possible trade war. Among other major currencies, the euro continued to appreciate on an improving growth outlook for the region. Most EME currencies have retreated in the wake of the recent market volatility and the improving US economic outlook, though investors continued to discriminate on country-specific factors.


Statement by Dr. Urjit R. Patel


 CPI inflation moderated in January-February, led largely by a sharp decline in vegetable prices and continuing deflation in pulses. Fuel group inflation also moderated mainly on the back of a decline in liquefied petroleum gas inflation, reflecting softening in international prices. These developments, combined with the continued softening in vegetable prices in March, are expected to pull down the headline CPI inflation in Q4:2017-18 below the projection made in February. However, it is noteworthy that over the last three months (December-February), the monthly CPI headline inflation (year-on-year) adjusted for house rent allowance (HRA) revision has averaged 4.6 percent.