RBI likely to retain policy rates unchanged, liquidity stance awaited

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By Swati Bhat


MUMBAI (Reuters) – The Reserve Bank of India monetary policy committee is expected to leave interest rates unchanged when it meets on Friday, after data showing the economy contracting less than expected and persistently high inflation.



Economists and market participants are closely watching the remark from the RBI around liquidity. The overnight call money rate has fallen below the reverse repo rate on days because of the excess liquidity in the banking system.


“The MPC’s views on liquidity will suppose more importance, as the transient surplus has pushed down short-term/overnight rates sharply,” said Radhika Rao, an economist with DBS Bank.


Economists expect the RBI to announce measures to help tweak market rates through liquidity absorbtion operations or giving increased access to the reverse repo window to more market participants.


All 53 analysts and economists in Reuters ballot conducted ahead of the GDP data released final week said they do not expect any change in rates on Friday.


Economists also pushed back the expected timing for the next rate cut by a quarter after the RBI having cut its key interest rate by a complete 115 bps this year to a record low of 4%.


The ballot showed economists now expect the next rate cut to be in the Apr-June quarter, as against the Jan-March period they had predicted in the preceding two surveys.


Inflation has remained consistently above the upper end of RBI’s mandated 2%-6% target range each month barring March this year while core inflation has also remained sticky.


Alternatively in the September quarter gross domestic product contracted 7.5% on year in comparison to a decline of 23.9% in the preceding three months, when the have an effect on of the coronavirus pandemic was once more pronounced.


RBI governor Shaktikanta Das final week said the economy was once showing stronger than expected pick-up in recovery but one must be watchful of the sustainability of demand after a series of devout festivals.


 


 


(Reporting by Swati Bhat; Editing by Simon Cameron-Moore)

(Only the headline and picture of this outline may have been reworked by the Trade Standard staff; the remainder of the satisfied is auto-generated from a syndicated feed.)

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