Experts say RBI may again opt for status quo on key policy rate next week
The Reserve Bank is likely to maintain status quo on interest rates for the eighth time in a row in the upcoming bi-monthly monetary policy review, amid rising global commodity prices and the need to contain domestic inflation. specialist.
The Reserve Bank last cut the repo rate by 40 basis points in May 2020 to boost demand in the COVID-hit economy. Since then, the RBI has refrained from taking any action on interest rates.
The meeting of the six-member Monetary Policy Committee (MPC) headed by the RBI governor is scheduled for three days from October 6. The decision taken in the meeting will be announced by Governor Shaktikanta Das on October 8.
A Morgan Stanley research report expects the RBI to keep rates in check in the upcoming policy review and maintain its accommodative stance.
“We believe that headline CPI will remain capped at around 5 per cent in the current fiscal, even as core inflation remains stable and pressure is being generated from higher global commodity prices. We would appreciate the RBI’s tone and guidance on the potential. We will remain cautious in the road to policy normalisation. We see the risk of rate hike (base case in 1Q22) as delayed as growth concerns may dominate, as inflation will likely be below the RBI’s forecast,” it said. said.
SBI Chairman Dinesh Khara had recently said that it looks like the interest rate should remain the same.
“Growth is only showing green shoots. So, I think maybe, a rate may not really go up, but the comment could talk about inflation. In my mind inflation is essentially about supply chain disruption. The reason is and once this disruption is addressed, inflation may not really raise its head, as was seen at the time of the previous policy decision,” he had said.
On his expectations from the MPC meeting, Ramesh Nair, Chief Executive Officer (CEO), India and Managing Director, Market Development, Asia Colliers, also expects the repo rate to remain unchanged in the upcoming Monetary Committee meeting. “This will go a long way in rekindling the momentum in the housing market. Stable housing prices, stamp duty cut in some states, and inclination to own homes have revived housing demand from Q4 2020 …A stable repo rate will ensure that banks keep their home loan rates low. This will certainly boost sentiments after the sluggish Q2 2021 due to the second wave of COVID,” Nair said.
Rumki Mazumdar, Economist, Deloitte India, said the RBI is under pressure to change its monetary policy stance.
“Much of this is because there has been increased speculation about the monetary policy stance in industrialized countries as inflation and rising commodity prices are driven by recovery in industrialized countries,” Mazumdar said.
According to an economist at Deloitte India, the Reserve Bank may decide to continue with the status quo and change its monetary policy stance or not hike interest rates. Majumdar also said that with the falling Covid infection rate and rapid vaccination, India’s growth outlook and prospects are very promising.
The September edition of EY Economy Watch, written by DK Srivastava, Chief Policy Advisor, EY India, said that as CPI inflation remains under pressure, the RBI may not cut the repo rate further in the near future.
It added that monetary policy will only play a supporting role, while the main stimulus to growth may need to come from the financial side.
If RBI maintains status quo in policy rates on Friday, it will be eight consecutive times as the rate remains unchanged. The central bank last revised the policy rate on May 22, 2020 in an off-policy cycle to spur demand by cutting interest rates historically.
The central government has asked the RBI to ensure that retail inflation based on the consumer price index remains at 4 per cent with a margin of 2 per cent on either side.
The Reserve Bank had kept the key interest rate unchanged after the monetary policy review in August, citing inflationary concerns.
With RBI projecting CPI inflation during 2021-22 at 5.7 per cent – 5.9 per cent in Q2, 5.3 per cent in Q3 and 5.8 per cent in Q4 of FY20, risks are broadly balanced. CPI inflation for the first quarter of 2022-23 is estimated at 5.1 per cent.
CPI inflation in August stood at 5.3 per cent. Inflation data for September is due to be released on October 12.
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