Mumbai, Apr 5 (PTI) Citing multiple risks to the inflation trajectory arising from farm price hikes and possible fiscal slippages, RBI Governor Urjit Patel today justified the status quo on key rates and its neutral stance in the monetary policy review.

Patel, who heads the 6-member Monetary Policy Committee which voted for holding the rates by 5:1, also said volatility in crude price and the second round impact of house rent allowance (HRA) hikes by the states pose risks to the price index.

“The MPC looks ahead and we noted that there are several uncertainties around the base line inflation path which is why we kept the stance neutral and the rate unchanged,” Patel told the reporters at the customary post- policy presser.

Getting the headline inflation down to 4 per cent is RBI’s contracted target with government. Positives like a cooling down in CPI inflation to 4.4 per cent for February had led to speculation over RBI’s rate call.

Patel said the February inflation print came lower, however, than what was earlier expected and attributed it to seasonal factors, saying vegetable prices move southwards in the winters.

MPC actually projected that excluding HRA, inflation print will be 4.7-5.1 per cent for the first half, lower than its earlier expectation.

RBI executive director and MPC member Michael Patra said that excluding HRA from the inflation basket can shave off 35 bps from headline price index.

Some analysts termed the MPC view as a very dovish commentary, while both the equity and bond markets cheered the RBI policy resolution statement. The markets drew comfort from lower inflation projection and higher GDP growth for 2018-19. While the BSE Sensex rallied 1.75 per cent, the rupee gained 18 paise.

Patel however made it clear that the MPC will be data determinant going forward.

On fiscal slippage, one of the major concerns influencing inflation trajectory, Patel said the movement of state finances and slippages if any will also have to be looked at as many of them have higher revenue commitments.

Patra reiterated that RBI will “look through” much of the impact that is coming through HRA hikes and explained that there is a 9.5 per cent contribution of HRA to the CPI basket.

Meanwhile, answering a specific question, deputy governor NS Vishwanathan said a change in norms will not lead to a surge in NPAs as is being feared by many people.

An asset becomes an NPA at the 90th day of non- repayment itself but it is only resolution of the stress in which the new norms applicable from April 1 are different, the deputy governor said.

On the liquidity in the system, another deputy governor Viral Acharya said the surplus, built up following note ban and forex inflows until last August, continued to decline over the last six months with corresponding rise in currency in circulation.

“The system liquidity is expected to be in a moderate surplus mode in the first half and the evolving liquidity condition will determine our choice of instruments for transient and durable liquidity management, Acharya said.

Meanwhile, RBI’s professional forecasters said survey estimates inflation to be at 4.3 per cent and real GDP to grow at 7.3 per cent for fiscal 2019.

This is published unedited from the PTI feed.