MPC Meeting: RBI Should Maintain ‘Status Quo’ As Covid Cases Rise Dramatically
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) will likely take a “dovish” stance while maintaining the status quo in its policy announcement today. The high-level committee, made up of six members, will announce its first political position of this exercise. On February 5, after the last MPC meeting, the central bank kept the key interest rate (repo) unchanged, citing inflationary concerns.
Economists and financial institutions also expect the MPC to maintain the status quo, given a sudden increase in Covid-19 cases and rising inflation. India became the second most affected country in the world after the United States on Monday, as it recorded more than a lakh of new infections in a single day. The current key loan repo rate is 4 percent, while the reverse repo rate stands at 3.35 percent.
While all economists polled by Bloomberg expect the panel to maintain the status quo on the repo rate, 65 of 66 economists polled by Reuters said there would be no change in policy rates. loans. Experts say the Covid-19 surge is a concern for the RBI. After expanding in the third quarter after entering a recession in the previous two quarters, the country is expected to experience 1% growth in the fourth quarter ending in March. However, as India grapples with the second wave, growth could still retreat sequentially.
According to Nomura, as statewide restrictions increase, growth could slow in the first quarter. Nomura economists believe, however, that the RBI may not rush to significantly reduce its FY22 target from the 10.5% previously forecast. Rising inflation also brings another set of concerns for the RBI. After cooling for two months, retail price inflation edged up to 5.03 percent in February from 4.06 percent in January.
Experts believe that rising inflation can no longer be ignored because since the previous RBI MPC meeting, food, commodity and fuel prices have risen. The RBI, experts believe, will wait until the opportune moment to announce monetary action to ensure the best possible result in terms of growth without sacrificing the primary objective of containing retail price inflation to 4% with a margin of 2% on each side. .
Notably, the government had asked the Reserve Bank to keep retail inflation at 4% with a 2% margin on each side for another five years ending in March 2026. But in today’s MPC announcement Now, the RBI could take the CPI-based detail into account. inflation too. Regarding future monetary policy, Edelweiss Research said the economic recovery is still uneven and the pace of improvement has slowed down lately after rebounding sharply from lows.
“Overall, we expect Mint Street to leave rates unchanged and maintain an accommodative stance. The main controllable element will be any focus on open market purchases (OMO) or long-term rates more generally.” , did he declare.
Dhruv Agarwala, CEO of the group, Housing.com, Makaan.com and Proptiger.com said the RBI is walking a tightrope between COVID-19 cases which are on the rise again across the country, which could potentially put the brakes on the economic recovery and inflation rate which tends to rise. “The umbrella bank is expected to keep the repo rate unchanged during the next bi-monthly key rate review,” he said.
With PTI inputs