Experts have said the RBI’s monetary policy committee could leave key interest rates unchanged
Bombay:
The Reserve Bank of India (RBI) is likely to maintain the status quo on interest rates in its upcoming monetary policy review, but may change its stance given retail inflation exceeding the upper tolerance limit, global uncertainties caused by the ongoing war between Russia and Ukraine and the urgency to protect and boost growth, experts feel.
RBI’s Monetary Policy Committee (MPC) headed by Governor Shaktikanta Das will hold its first 2022-23 meeting from April 6-8. It will announce its decision on lending rates on April 8.
Aditi Nayar, chief economist at rating agency ICRA, said the MPC is expected to revise its consumer price index (CPI)-based inflation or retail inflation forecast, while adjusting growth forecasts for 2022-23.
Nevertheless, the MPC is unlikely to sacrifice growth to contain imported inflation. With the upper bound of the medium-term inflation target of as much as 6 percent, the MPC is likely to remain growth-supportive for longer than other central banks. Overall, we expect a status quo policy in April 2022,” she said.
Given the current uncertainties, Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, said RBI has “limited scope to tighten monetary policy”.
Amid the damaging effects of the war, the RBI will loop its monetary policy decisions on a tightrope, aiming to contain inflation within the tolerance band while supporting nascent growth impulses, he said.
“Going forward, we expect the RBI to restore the width of the LAF corridor to pre-pandemic levels by increasing the reverse repo rate by 40 bp during the June-August 2022 policy review, followed by a cumulative increase of 50 bps. bp of the repo rate.” in the remainder of 2022-2023,” Chowdhury said.
On the other hand, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com & PropTiger.com, said that given the increase in inflationary pressures caused by the war in Ukraine, it will be difficult for the RBI to to maintain status. quo on key policy rates in its forthcoming monetary policy.
“While this would hurt India’s recovery process after the disruptions caused by the several waves of the coronavirus pandemic, the RBI may not have the flexibility to avoid a rate hike,” he said.
Mr Agarwala went on to say that any upward adjustment at this stage could also have an impact on real estate, but figures for the March quarter show that the real estate sector is on a strong footing and the ground lost due to the pandemic is of strong restrained demand.
Japanese brokerage Nomura said in a research report that the RBI is likely to re-evaluate its projection for both GDP growth and CPI inflation at its upcoming policy meeting.
However, the RBI likely suggests that inflationary pressures are temporary, inflation will remain below the 6 percent cap and monetary policy should continue to support growth.
Therefore, even if there is a reasonable chance that the RBI will take its first hesitant step towards normalization in key rates in its April 8 meeting by changing its stance from “accommodative” to “neutral,” it will likely balance it. with mild guidance, it said.
“We believe that the RBI is too optimistic about inflation and that a monetary policy correction is warranted. We expect a policy reversal in June and therefore build 100 basis points in cumulative repo rate hikes in 2022,” the report said.
After the February MPC meeting, RBI had decided to keep its key interest rates stable at historically low levels for the 10th consecutive meeting to support a sustainable recovery of the economy from the COVID-19 pandemic.
