RBI’s MPC begins deliberations amid expectations of status quo in key rate


The Reserve Bank’s rate-setting panel, Monetary Policy Committee (MPC), began its three-day deliberations on Wednesday amid expectations of a status quo on benchmark rate chiefly as a result of uncertainty over the affect of the second one wave of COVID-19 pandemic.

In addition, the fears of firming inflation may additionally chorus the MPC from tinkering with the interest rate in its bi-monthly monetary policy outcome to be announced on Friday.

The RBI had kept key interest rates unchanged at the final MPC assembly held in April. The key lending rate, the repo rate, used to be kept at 4 per cent and the reverse repo rate or the central bank’s borrowing rate at 3.35 per cent.

M Govinda Rao, Chief Economic Advisor, Brickwork Ratings said the better-than-expected GDP numbers give you the much-needed consolation to the MPC on the growth outlook.

Then again, with the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified, he said.

“Hence, the RBI is likely to continue with its accommodative monetary policy stance. Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Ratings expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” he famous.

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com believes the RBI can deal with its accommodative stance in light of the economic affect of the second one wave of COVID-19, without endangering its key goal of keeping inflation under keep watch over.

Reviving growth has turn out to be a very powerful objective because of the economic damage caused by the recent lockdowns, he said, and added the RBI must also imagine providing more liquidity to the National Housing Bank to enable the stability of housing finance companies, which in turn will allow the real estate sector to expand.

Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank used to be of the view that in the current surroundings, the choices before the Monetary Policy Committee could also be limited.

“With the second one phase of the pandemic impacting consumption and growth, the MPC will likely deal with status quo on policy rates, continue with an accommodative policy stance and make sure adequate liquidity in the system – all with the intention to stimulate growth. While it is going to retain one eye on inflation levels on the back of rising global commodity prices, it currently will focus on supporting economic growth,” Ekambaram said.

According to Sandeep Bagla, CEO of TRUST AMC, “It is expected to be a no change policy, with continued economy friendly soft interest rate bias.” The RBI annual outline released final week has already made it lucid that “the conduct of monetary policy in 2021-22, would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis while ensuring inflation remains inside the target.” The Reserve Bank, the outline added, would make certain that system-level liquidity remains comfortable all the way through 2021-22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability.

In the assessment of the RBI, the evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The food inflation path will critically depend on the temporal and spatial progress of the south-west monsoon in 2021.

The government has retained the inflation target at 4 per cent with the lower and the upper tolerance band of 2 per cent and 6 per cent, respectively, for the next five years (April 2021 – March 2026).

Retail inflation, based on Consumer Price Index (CPI), slipped to a three-month low of 4.29 per cent in April chiefly as a result of easing of prices of kitchen items like vegetables and cereals. The RBI chiefly factors in the CPI while arriving at its monetary policy.

As per the RBI annual outline, supply-demand imbalances may continue to exert pressure on food items like pulses and edible oils, prices of cereals may soften with bumper foodgrains production in 2020-21.

(This story has not been edited by Trade Standard staff and is auto-generated from a syndicated feed.)

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