Reserve Bank of India (RBI) will announce the decision of its bi-monthly monetary policy on February 10. India’s central bank will likely to maintain the status quo on the benchmark interest rate or repo rate amid inflationary concerns. RBI monetary policy committee (MPC) could, however, increase the reverse repo rate to reduce the surplus liquidity in the market. Several experts also expected that the central bank may change the policy stance from ‘accommodative’ to ‘neutral’ in its first MPC after Budget 2022.
RBI MPC has kept the key lending rates at record lows since May 2020. RBI governor Shaktikanta Das has reiterated time and again that the central bank will keep its stance ‘accomodative’ as long as it is needed to support the economy.
Also Read: RBI Monetary Policy LIVE Updates: Will RBI Hike Reverse Repo Rate and Change Stance?
RBI MPC: Will the Central Bank Hike Repo Rate?
According to a Reuters poll, the RBI would raise the reverse repo rate to 3.55 per cent to 3.35 per cent. The repo rate will be kept unchanged at 4 per cent.
“While it is widely expected that the RBI will keep the repo rate unchanged at 4.0 per cent in the ongoing MPC meeting we expect that the RBI will raise the reverse repo rate by 25 bps to 4.50 per cent thus narrowing the LAF corridor to 50bps. The move will largely be symbolic in nature given that the RBI has been sucking in excess liquidity through the variable rate reverse repo (VRRR) thus pushing the effective rate closer to the repo rate,” said Jyoti Roy, DVP- equity strategist, Angel One Ltd.
“We expect the MPC to start increasing the policy rates beginning with normalising the policy corridor between repo and reverse repo rate. We expect the RBI to hike the reverse repo rate in its April 2022 policy meeting,” Brickwork Ratings said in a note.
Repo Rate to Go up Soon?
Economists also believed that the central bank will increase the repo rate by 25 bps at the subsequent meeting in April. “RBI’s likely to maintain status quo on repo rate until next April meeting as it juggles between policy normalization and massive increase in CAPEX by 35.4 per cent or 2.9 per cent of the GDP, in the next financial scaling up the government borrowing program. RBI already has a balancing task with central banks across the world turning hawkish by increasing their interest rates, US Fed tapering, alongside spiraling fuel prices and growing depreciation pressures for the rupee. ” said Esha Khanna, assistant professor, NMIMS Sarla Anil Modi School of Economics.
“Moreover, the RBI will also start preparing the markets for rate hikes later during the year as the US Fed is expected to raise the fed rate by 75-100 bps in 2022,” Roy added.
Inflation: How will RBI Tackle it?
Retail inflation in India rose to a five-month high of 5.59 per cent in December. The wholesale price-based inflation marginally eased to 13.56 per cent. It remained in in double-digits for nine straight months. The analysts expect that inflation and growth forecast for this fiscal may remained unchange in RBI MPC scheduled on February 10. Market will keenly watch RBI monetary policy on February 10 for forward guidance on inflation and growth of the Indian economy for the next fiscal.
“While inflation levels in India are expected to stay below the RBIs tolerance level of 6.0 per cent it is widely expected that the RBI will raise by 50-75bps in FY2023 due to aggressive tightening by the US Fed,” Roy further mentioned.
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