Amid rising global commodity prices and the need to contain inflation in the country, the Reserve Bank is expected to maintain the status quo on interest rates for the eighth time in a row in its next review. bimonthly monetary policy later in the week, experts say.
The Reserve Bank last cut the repo rate by 40 basis points in May 2020 to 4% to boost demand in the COVID-hit economy. Since then, the RBI has refrained from taking action on interest rates.
The RBI governor, who heads the six-member Monetary Policy Committee (MPC), is due to meet for three days from October 6. The decision taken at the meeting will be announced by Governor Shaktikanta Das on October 8.
A Morgan Stanley research report expects the RBI to continue to hold rates unchanged and maintain their dovish stance during the next policy review.
“We believe the headline CPI will remain limited around the 5% mark in the current fiscal year, even as core inflation remains stable and pressures emanate from rising global commodity prices. We will remain attentive to the tone and guidance of the RBI regarding the likely path We consider the risks of a rate hike (base scenario in 1Q22) to be biased and delayed, as growth concerns could dominate given that inflation will likely be lower than the RBI forecast, âhe said.
SBI Chairman Dinesh Khara recently said it looks like the interest rate should stay as it is.
âGrowth is only showing green shoots. So I think the rate may not really go up, but the comments could speak of inflation. In my opinion, inflation is basically due to the disruption of the supply chain and once this disruption is resolved, inflation cannot really lift its head, as much as we saw in the last policy decision, “he said.
Regarding his expectations for the MPC meeting, Ramesh Nair, CEO of India and Managing Director of Market Development at Asia Colliers, also expects the repo rate to remain unchanged at the next meeting. of the Monetary Committee.
“This will go a long way to rekindle the momentum in the housing market. Stable house prices, reduced stamp duties in some states and a trend towards homeownership have boosted housing demand starting in the fourth quarter of 2020. . A stable repo This rate will guarantee banks to keep their mortgage rates low. This will certainly cause sentiment to rise, after a lackluster second quarter 2021 due to the second wave of COVID, “said Nair.
Rumki Majumdar, Economist, Deloitte India said there is pressure on the RBI to change the stance of monetary policy.
“This is largely due to the fact that there has been an increase in speculation about monetary policy positions in industrialized countries as the recovery in industrialized countries leads to higher inflation and higher commodity prices. “said Majumdar.
According to the economist at Deloitte India, the Reserve Bank could decide to maintain the status quo and not change its monetary policy or increase interest rates.
Majumdar also said that with declining rates of Covid infection and rapid inoculation, India’s growth prospects and outlook are very bright.
The September edition of EY Economy Watch, authored by DK Srivastava, Chief Policy Advisor, EY India, said that as CPI inflation has remained under pressure, the RBI may not take any action. further reduction in the repo rate in the near future.
Monetary policy would only play a supporting role while the main boost to growth may have to come from the fiscal side, he added.
If the RBI maintains the status quo in key rates on Friday, it would be the eighth consecutive time that the rate has remained unchanged.
The central bank last revised the policy rate on May 22, 2020, in a non-political cycle to revive demand by lowering interest rates to an all-time low.
The central government has asked the RBI to ensure that retail price inflation based on the consumer price index remains at 4 percent with a 2 percent margin on either side.
The Reserve Bank had kept the key interest rate unchanged in its monetary policy review in August, citing inflation fears.
The RBI has projected CPI inflation at 5.7% in 2021-2022 – 5.9% in the second quarter, 5.3% in the third and 5.8% in the fourth quarter of the fiscal year, with globally balanced risks. CPI inflation for the first quarter of 2022-2023 is projected at 5.1%.
CPI inflation was 5.3 percent in August. Inflation data for September is expected to be released on October 12.