Amid surge in COVID-19 cases, RBI should maintain status quo

MUMBAI : Amid the uncertainty created by the surge in coronavirus cases, the Reserve Bank of India (RBI) is likely to maintain the status quo in its next monetary policy review and wait a little longer before taking steps to stimulate growth.

The RBI is expected to announce its first bi-monthly monetary policy for fiscal year 2021-22 on April 7, 2021 after a three-day meeting of the Monetary Policy Committee (MPC) chaired by RBI Governor Shaktikanta Das. On February 5, after the last MPC meeting, the central bank kept the key interest rate (repo) unchanged citing inflationary concerns.

According to experts, the RBI is likely to maintain the accommodative stance of monetary policy and wait for the opportune moment to announce monetary action to ensure the best possible outcome in terms of boosting growth without sacrificing the main objective of containing inflation.

In a report, Dun & Bradstreet said the recent surge in COVID-19 cases and restrictions imposed by several states will impose more uncertainty and obstacles as industrial production resumes.

Dun & Bradstreet’s global chief economist Arun Singh said long-term yields were tightening, causing borrowing costs to rise.

“In this context, the Reserve Bank of India faces the difficult task of managing inflationary pressures while preventing a rise in the cost of borrowing.

“Despite mounting inflationary pressures, we expect the RBI to keep the policy repo rate unchanged in the next monetary policy review, given the uncertainty posed by the sharp rise in COVID-19 cases.” , did he declare.

Asked about his expectations for the next MPC, ANAROCK Property Consultants President Anuj Puri said that with consumer inflation fluctuating and not yet stable and the political repo rate also drastically reduced 115 basis points since February 2020, the RBI may consider keeping rates. waiting.

“It is likely that he will keep an eye on how inflation and economic recovery plays out in the months to come amid the increase in COVID-19 cases in the country.

“India is witnessing a second wave with partial lockdowns imposed in different states and cities. In such a scenario, it is highly likely that the RBI will maintain the status quo,” he said.

Further, Puri added that while the real estate industry’s eternal hope is set on lower interest rates, the lowest and best home loan rates, starting as low as 6.70 percent, are attractive enough to buyers.

In a recent report, UBS Securities India economist Tanvee Gupta Jain expected the RBI to maintain comfortable liquidity in the near term to ensure the least disruption to the government’s borrowing program and support the recovery. economic as COVID-19 cases are re-emerging in India.

“We continue to expect the central bank to continue to normalize its policy in the second half of FY22 to contain inflationary pressures and preserve financial stability.

“In our baseline scenario, we expect the MPC to move towards a neutral policy and / or pursue reverse repo rate hikes (25-40bp) without resorting to policy (repo) rate hikes in FY22 . 50bp but only towards H2FY23, ”Jain said.

Meanwhile, a report by Anand Rathi said that the reversal of the easing trend in retail inflation seen over the past three months would put pressure on the RBI to examine the extent of monetary and liquidity accommodation.

“The tightening of core inflation would be particularly uncomfortable. Despite this, the concern for continued growth should keep monetary policy accommodative in 2021,” he said.

The policy rate for pensions or short-term loans is currently 4 percent, and the reverse repo rate is 3.35 percent.

The RBI maintained the status quo after May of last year.

The RBI last revised its key rate on May 22, 2020 in an off-policy cycle to stimulate demand by lowering the interest rate to an all-time low of 4%.

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