Monetary Policy: Will RBI maintain status quo or hike interest rates? Announcement at 10 am
Reserve Bank of India (RBI) Governor Shaktikanta Das will announce the decision of the Monetary Policy Committee (MPC) on key interest rates today. The rate-setting panel on Wednesday began discussions on whether to strengthen the next bi-monthly monetary policy.
This is the first meeting of the MPC under the chairmanship of RBI Governor Shaktikanta Das in the current financial year. There are expectations that the MPC may maintain the status quo on interest rates, but may change its monetary policy stance amid rising inflation due to geopolitical developments.
In the last 10 meetings, the MPC has left the interest rate unchanged and also maintained a liberal monetary policy stance. The repo rate or short-term lending rate was last cut on May 22, 2020. Since then, the rate has remained at a historic low of 4 percent.
In a report this week, the State Bank of India (SBI) said the central bank may significantly raise its inflation projections for the fiscal year 2022-23 and also reduce growth projections. It expects the RBI to continue with the pause on the short-term lending rate (repo).
“Prolonged growth supportive stance may have created problems of signal clearance and coordination, while rate cuts are being administered despite a consistent cut in inflation,” SBI said in the report.
As per the report, real rates have been consistently negative for a period of time and “RBI may prefer to make a disproportionate note by emphasizing inflation as a threat but at the same time emphasizing it has been completely forfeited! “
Industry body PHD Chamber President Pradeep Multani said the economy is still in the process of recovering from the hard impact caused by the coronavirus pandemic and a liberal policy stance would be inevitable at this juncture to strengthen the economic fundamentals.
“While recent geopolitical developments tend to increase inflation, the status quo of policy rates will help the economy withstand the impact of external shocks,” he said.
The ongoing Russia-Ukraine conflict and rising oil prices are driving the cost of commodities higher, resulting in an increasing trend of inflation. The government has ordered the central bank to keep inflation at 4 per cent with an upper and lower tolerance level of 2 per cent.
Following the MPC meeting in February, the RBI had decided to keep its key lending rates at a record low for the 10th consecutive meeting to support a sustainable recovery of the economy.