RBI’s interest rate-setting panel starts deliberating next monetary policy

PTI, Oct 6, 2021, 2:44 PM IST

Mumbai: Reserve Bank’s rate-setting panel started its three-day deliberations on the next bi-monthly monetary policy on Wednesday amid rising global commodity prices and the need to contain inflation at home.

The decision of the six-member Monetary Policy Committee (MPC) would be announced on Friday by RBI Governor Shaktikanta Das.

Experts are of the view that the central bank will maintain the status quo on policy rates for the eighth time in a row. The policy repo rate or the short-term lending rate is currently at 4 percent, and the reverse repo rate is 3.35 percent.

Ranen Banerjee, leader (Public Finance and Economics) at PwC India opined that the latest statements by the US Fed Chair on possible actions if inflation does not wear off by H1 of 2022 is a clear commencement of chatter around rate action after the clarity on taper timing.

“This will have a bearing on the stance of the MPC as it will also be worried on the inflation front given the oil, natural gas, and coal prices showing no signs of abetting and rather continuing to have an upward bias,” he said.

However, it is very unlikely that there will be any rate action given the inflation is within the tolerance band and the 10-year yields keep hovering slightly above 6 percent, Banerjee said.

M Govinda Rao, Chief Economic Advisor of Brickwork Ratings, said with the consumer price inflation easing from 5.59 percent in July to 5.3 percent in August, improved supply situation on the back of the pandemic-led restrictions being relaxed, and capacity utilization still in the recovery mode, there is no immediate pressure on the MPC to either alter interest rates or change the accommodative stance.

When asked for his opinion, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com, and PropTiger.com, said even though most growth indicators currently show positive signals, the RBI is expected to maintain a status quo on key policy rates to maintain financial stability and boost demand during the ongoing festive season.

He also said that home loans are currently available at interest as low as 6.50 percent annual interest.

“The continuation of this historically low-interest rate regime for the entire festive season is a must for India”s real estate sector, the second biggest employment generating sector in India, to regain its strength,” Agarwal added.

The RBI has projected the CPI inflation at 5.7 percent during 2021-22 — 5.9 percent in the second quarter, 5.3 percent in the third, and 5.8 percent in the fourth quarter of the fiscal, with risks broadly balanced. CPI inflation for the first quarter of 2022-23 is projected at 5.1 percent.

The CPI inflation was at 5.3 percent in August. The inflation data for September is scheduled to be released on October 12.

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings and Research said: In line with market expectations, RBI will continue with its accommodative monetary policy in October 2021 although it is likely that it may take some further steps to recalibrate the excess liquidity in the monetary system over the next 1-2 quarter.

He further said while the high-frequency indicators for August and September reveal that economic activity is reaching its pre-pandemic levels and the risks of another wave of the COVID are gradually on a decline, the recovery momentum is still uneven and not well anchored across all sectors of the economy.

Sharing his pre-monetary policy view, Sandeep Bagla, CEO, TRUST Mutual Fund said the next two CPI inflation readings are likely to be below 5 percent.

“Credit offtake is yet to pick up in a meaningful way. While there is a lot of speculation that time is ripe for RBI to signal the withdrawal of accommodation and change stance, it is quite likely that the MPC chooses for status quo policy with no change in repo rates or stance,” he said.

If the RBI maintains the status quo in policy rates on Friday, it would be the eighth consecutive time since the rate remains unchanged. The central bank had last revised the policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.

The RBI has been asked by the central government to ensure that the retail inflation based on the Consumer Price Index remains at 4 percent with a margin of 2 percent on either side. The Reserve Bank had kept the key interest rate unchanged in its after monetary policy review in August citing inflationary concerns.

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