The Reserve Bank of India (RBI) will announce its bi-monthly monetary policy decision on August 6. India’s central bank is likely to keep interest rates at record lows amid fears of a third wave. coronavirus Universal pandemic. Most analysts said the RBI Monetary Policy Committee (MPC) will keep the key lending rate or repo rate unchanged at 4 per cent for the seventh consecutive meeting.
Analysts said tight inflation and uncertain growth amid the COVID-19 pandemic will force policymakers to continue on a wait-and-watch mode. “The RBI MPC is unlikely to rock the (policy) boat in August, opting to keep the repo rate at 4 per cent and the policy corridor unchanged. Further guidance would favor a continuation of the accommodative policy stance to hedge against development risks, particularly the third COVID wave. Radhika Rao, Senior Economist, DBS Bank said, “The accompanying remarks will address inflation risks through close monitoring and refrain from changing policy levers.”
“We also expect the RBI to be patient with any policy maneuvers
Focus more on domestic conditions at the end of FY12 and evolving growth-inflation mix. However, the minutes of this meeting may provide interesting insights into the mind of the MPC and provide a guide for the future trajectory of monetary policy, especially as growth appears to be at an inflection point but with inflation moderating, The Economist Department of Yes Bank said.
Anuj Puri, Chairman, ANAROCK Property Consultants said, “RBI is unlikely to announce any major changes in its upcoming monetary policy as retail and wholesale inflation is far out of control and the pandemic is adding to inflationary pressures further.”
All 61 economists polled by Reuters expect the MPC to maintain rates as Asia’s third-largest economy with various local lockdowns to control the Covid-19 pandemic. However, the consensus expected was that the central bank would increase the repo rate by two 25 basis points in the next fiscal year, bringing the repo rate to 4.50 per cent by the end of March 2023.
Economists said the central bank may slightly raise its inflation forecast. “The 6-0 vote in favor of status quo on rates in August with accommodative stance is our basic expectation. Inflation is set to remain high for RBI’s comfort, given higher global commodity prices, stable food inflation and a rise in domestic fuel prices. However, with the temporary and uneven nature of the recovery, the MPC expects to prioritize supportive growth in the coming months,” said Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank.
“The MPC is expected to dial down its FY22 inflation forecast from the current 5.1% y/y. Headline CPI inflation remained above the 4% target midpoint for 21 consecutive months and above the 6% tolerance band for more than half of that period We expect price pressures to ease in the rest of 2021 and bounce back in the March 2022 quarter. Our CPI inflation forecast for FY12 is 5.5%,” Rao said.
“Although consumer inflation has exceeded 6 per cent in the last two months, the RBI does not expect a rate hike nor change its stance from accommodative to neutral with the major threat of a third wave during the pandemic. The additional support provided along with rate cut can be normalized only after analyzing the impact of third wave.Even during last one year when CPI crossed 6 per cent mark due to supply side pressure, MPC did not hike rates and supported growth. If the CPI consistently crosses the 6 per cent mark over the next few months, the MPC may be forced to rethink rates and stance. Till then, the status quo There is hope,” said Diwakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP.
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