Mumbai: reserve Bank of India (reserve Bank of IndiaEconomists at Standard Chartered Bank, introduced in a research note on Friday, are likely to signal the start of their liberal monetary policy introduced at a meeting next week to cushion the economic impact of the pandemic.
The general opinion is that the RBI will leave interest rates unchanged at its MPC meeting on October 8 and only begin to open up its accommodative monetary policy by bridging the gap between repo and reverse repo rates early next year.
However, some economists, including those at Stanchart, have raised their policy normalization expectations amid concerns about domestic inflation from rising oil and global commodity prices and a sharp uptick in vaccination momentum.
Standard Chartered said, “We now expect India’s Monetary Policy Committee (MPC) to raise the reverse repo rate by 40 basis points to 3.75% in the December 2021 and February 2022 policy meetings; we have previously seen in February and April 2022.” An increase was expected.” Economists said.
He expects the MPC to raise the key repo rate only in August 2022, but said the risk of an earlier hike has increased. He also acknowledged the risk of marginal increase in reverse repo rate on October 8 due to higher cut-off in the recent variable rate reverse repo auctions.
“Contrary to the VRRR cut-off/size and duration, a hike in the reverse repo rate is a strong sign of policy normalisation,” the economists said.
He said, “We feel that a stronger signal is needed when the risk of another surge in infections is largely ruled out. Additionally, with the festive season entering India, the supportive Monetary policy is likely to support sentiment and demand.”
Nomura also expects a 40 bps reserve repo rate hike in December and a total 75 bps repo and reverse repo rate hike in 2022.
“We still believe that the RBI’s normalization strategy will depend on the growth outlook, not inflation,” Barclays economist Rahul Bajoria said in a research note.
He said, “Macro indicators suggest that India’s activity levels have begun to normalize, and with the economy recovering faster than anticipated, the RBI has an exit from our view, both through communication and actions. There are more options,” he said.
The general opinion is that the RBI will leave interest rates unchanged at its MPC meeting on October 8 and only begin to open up its accommodative monetary policy by bridging the gap between repo and reverse repo rates early next year.
However, some economists, including those at Stanchart, have raised their policy normalization expectations amid concerns about domestic inflation from rising oil and global commodity prices and a sharp uptick in vaccination momentum.
Standard Chartered said, “We now expect India’s Monetary Policy Committee (MPC) to raise the reverse repo rate by 40 basis points to 3.75% in the December 2021 and February 2022 policy meetings; we have previously seen in February and April 2022.” An increase was expected.” Economists said.
He expects the MPC to raise the key repo rate only in August 2022, but said the risk of an earlier hike has increased. He also acknowledged the risk of marginal increase in reverse repo rate on October 8 due to higher cut-off in the recent variable rate reverse repo auctions.
“Contrary to the VRRR cut-off/size and duration, a hike in the reverse repo rate is a strong sign of policy normalisation,” the economists said.
He said, “We feel that a stronger signal is needed when the risk of another surge in infections is largely ruled out. Additionally, with the festive season entering India, the supportive Monetary policy is likely to support sentiment and demand.”
Nomura also expects a 40 bps reserve repo rate hike in December and a total 75 bps repo and reverse repo rate hike in 2022.
“We still believe that the RBI’s normalization strategy will depend on the growth outlook, not inflation,” Barclays economist Rahul Bajoria said in a research note.
He said, “Macro indicators suggest that India’s activity levels have begun to normalize, and with the economy recovering faster than anticipated, the RBI has an exit from our view, both through communication and actions. There are more options,” he said.
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