RBI may keep key policy rates unchanged, say experts
Highlight
- RBI likely to maintain status quo in its upcoming monetary policy
- The meeting of the Monetary Policy Committee chaired by the Governor of the Reserve Bank is scheduled from December 6-8
- RBI is not bound to act on reverse repo rate only in MPC
Given the global scare due to the new COVID-19 variant Omicron, the Reserve Bank of India (RBI) may wait for a more opportune time in its upcoming monetary policy to maintain status quo and calibrate the benchmark interest rate. To promote growth without sacrificing the main objective of controlling inflation.
The Monetary Policy Committee (MPC) chaired by the Reserve Bank Governor is scheduled to meet from December 6-8, 2021. The decision of the rate setting panel will be announced on Wednesday (December 8). The central bank did not change the benchmark policy rate in October.
A research report by SBI said, “…we are of the view that the talks of a hike in reverse repo rate at the MPC meeting may be premature as RBI hikes rates and the noise of market turmoil.” Has been able to narrow the corridor to a great extent without.”
Accordingly, RBI is not bound to act on reverse repo rate only in MPC.
“Furthermore, the change in reverse repo rate is an unconventional policy tool that the RBI has effectively deployed during the crisis when it moved to a floor instead of a corridor,” it added.
A report by Kotak Economic Research said that with the uncertainty surrounding the new Covid version, the RBI will likely wait for some clarity before proceeding decisively on rates.
“We maintain our call for an increase in the reverse repo rate in February, with the December meeting remaining a close call. We expect the RBI to increase the reverse repo rate in the February policy and the repo in mid-2022. Will continue on its path of normalization with increase in rate. -23,” it said.
Asset advisor Anarock said there were expectations that the RBI may increase the reverse repo rate to a marginal extent during the upcoming monetary policy.
“However, it is likely that the RBI will retain the existing regime in response to the flare-up of Omicron concerns in times of generalized economic recovery. Hence, home loan borrowers may enjoy the ongoing low interest rate regime for some more to come. Time,” said Anuj Puri, Chairman, Anarock Group.
The hike in repo rates and home loan interest rates are inevitable and will certainly happen in future, he added.
If the RBI maintains status quo in policy rates on Wednesday, it will be for the ninth time in a row 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 (CPI) remains at 4 per cent with a margin of 2 per cent on both sides. The Reserve Bank had kept key interest rates unchanged after the monetary policy review in August, citing inflation concerns.
In its October MPC meeting, the central bank pegged CPI inflation for 2021-22 at 5.3 per cent: 5.1 per cent in the second quarter, 4.5 per cent in the third quarter; 5.8 per cent in the last quarter of 2021-22 with broadly balanced risks. CPI inflation for the first quarter of 2022-23 is estimated at 5.2 per cent.
(with PTI input)
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