Global financial services major Bank of America Merrill Lynch (BofAML), termed the latest RBI policy as "balanced" and said that macro risks are getting overdone in the government securities (G-sec) market.
In its 6th and the last bi-monthly monetary policy review of the current fiscal, 2017-18, RBI yesterday kept interest rates unchanged for the third time in a row saying that higher government spending would accelerate inflation, and warned of risks from wider fiscal deficit.
The Reserve Bank did not go in for a hike in key rates, despite expecting a surge in inflation going forward, as the price rise is being driven by higher house rent allowance (HRA) to government employees, Governor Urjit Patel had said.
Nearly 0.35 per cent of current inflation is due to the HRA hikes as per the 7th pay panel recommendations, he said.
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The RBI has upped its inflation forecast to 5.1 per cent for the current fourth quarter of the 2017-18 fiscal ending March 31. It expects inflation to firm up further to 5.1-5.6 per cent in first half of the next fiscal, before cooling down to 4.5-4.6 per cent in the second half.
The report however, noted that core inflation (excluding food, fuel and HRA) is already hovering about a reasonable 4.2 per cent.
"We continue to expect the RBI to cut rates by 25 bps in August if we see normal rains," it added.
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