Bombay:
Bearing in mind inflation concerns, the Reserve Bank of India (RBI) is likely to maintain the status quo on key policy rates in its next bimonthly economic policy, which will be the first after the union’s 2022-23 budget release. .
However, experts believe that the RBI’s Monetary Policy Committee (MPC) can change the policy stance from “accommodative” to “neutral” and tinker with the reverse repo rate as part of the liquidity normalization process.
The next bimonthly monetary policy is expected to be announced on February 9, at the conclusion of the MPC’s three-day deliberations beginning tomorrow (February 7).
Madan Sabnavis, chief economist at the Bank of Baroda, said that given the certainty about growth according to the budget and the possibility that inflation will rise mainly as a result of crude oil, “we expect the RBI to kick-start the normalization process by the reverse repo rate at 25 bps”.
There will be no change in the repo rate this time around, even though a 50 basis point increase is expected next year, Sabnavis said, adding that there could be a slight downward revision to the GDP growth rate for FY22.
“Will there be a change of position? Probably didn’t think this time that the rise in the reverse repo rate would signal the future course of interest rates,” said Sabnavis.
Shanti Ekambaram, Group President, Consumer Banking, Kotak Mahindra Bank, said that amid global inflationary pressures, the tightening monetary policies of global central banks, high oil prices, domestic inflation and the soaring domestic yields will have a tightrope. walk as they discuss monetary policy stance and interest rates in the coming week.
“As the overnight rate is closer to 4 percent, we expect the RBI to change the reverse repo rate by up to 25 bps or to change the repo’s operating rate. While an increase in the repo rate is not expected, it is possible that the MPC could change its stance from neutral to accommodative,” Ms Ekambaram said.
The last MPC, held in December 2021, had kept the benchmark rate unchanged at 4 percent and decided to press ahead with its accommodative stance amid concerns over the emergence of the novel coronavirus variant Omicron. It was the ninth time in a row that the rate setting panel maintained the status quo.
Aditi Nayar, chief economist, ICRA, expects a status quo from the MPC this time around. According to her, the normalization of the policy will start in April with a change of position and a reverse repo increase. “We then see two 25bps repo increases in the next two reviews,” she added.
The RBI has been instructed by the government to keep interest rates within the range of 2 to 6 percent.