RBI likely to maintain the status quo on key policy rates

Mumbai: In view of inflationary concerns, the Reserve Bank is likely to maintain the status quo on key policy rates in its next bi-monthly economic policy, which will be the first after the presentation of the Union Budget for 2022- 23

Experts, however, are of the opinion that RBI's monetary policy committee (MPC) may change the policy stance from accommodative 'to neutral' and tinker with the reverse-repo rate as part of the liquidity normalization process.

The next bi-monthly monetary policy is scheduled to be announced on Wednesday at the end of three-day deliberations of the MPC beginning Monday.

Medan Sabravis, Chief Economist, Bank of Baroda, said given the assurance on growth as per the budget and the possibility of inflation rising mainly due to crude oil, "we expect the RBI to start the process of normalization by increasing the reverse repo rate by 25 bps". There will be no change in Shanti Ekambaram, Group President, Consumer Banking, Kotak Mahindra Bank, said amidst global inflation pressure, tightening monetary policies by global central banks, high oil prices, domestic inflation, and the sharp rise in domestic yields, the MPC will have a tight rope-walk as they discuss the monetary policy said. Stance and interest rates in the coming week.

"Given that the overnight call rate is closer to 4 percent, we expect the RBI to change the reverse repo rate by up to 25 bps or make repo the operative rate. While a repo rate hike is not expected, it is possible that the MPC might change

"Will there be a change instance? Probably not this time thought the hike in reverse repo rate will send a signal of the future direction of rates," Sabnavis opined.

On her expectations from the MPC, Shruti Aggarwal, co-founder, Stashfin, said India's GDP growth, which is estimated at 9.2 percent for 2021-22 will be one of the fastest globally. To maintain and achieve this rate of growth, it'll be challenging for the government to balance upward inflation as well.its stance to neutral from accommodative." Ekambaram

"With COVID appears to abate, an increase in demand can be forecasted. A hike in interest rates that keeps inflation around 6 percent should help in driving liquidity. A clear strategy on inflation and liquidity should further lead to an increase in investments. We are optimistic about the economy as the risks associated with un- certainty around COVID and oil prices. growth," said Aggarwal

The last MPC held in December 2021 had kept the benchmark interest rate unchanged at 4 percent and decided to continue with its accommodating stance against the backdrop of concerns over the emergence of the new coronavirus variant Omicron. It was the ninth time in a row that the rate-setting panel had maintained the status quo.

Aditi Nayar, Chief Economist, ICRA, expects a status quo, this time from the MPC. According to her, policy normalization is set to commence in April with a stance change and reverse repo hike. "Subsequently we see two 25 bps repo hikes over the next two reviews," she added.

Arvind Cheri, CIQ Quienem Advisors opined that with the government well and truly accepting the mantle of reviving growth, the RBI no longer needs to practice growth over inflation. Their current stance of accommodative policy for as long as necessary to revive growth needs to be changed.

Source-PTI