Will the RBI raise the interest rate in the first monetary policy of the current financial year? what experts say
The Reserve Bank of India’s rate-setting panel on Wednesday began discussions on tightening the next bi-monthly monetary policy amid hopes that it may maintain status quo on interest rates but amid rising inflation due to geopolitical developments. change its monetary policy stance.
The first meeting of the Monetary Policy Committee (MPC) headed by RBI Governor Shaktikanta Das is being held in the current financial year. The meeting will run from April 6 to 8 and the result will be declared on April 8.
In the last 10 meetings, the MPC has left the interest rate unchanged and also maintained a liberal monetary policy stance. The repo rate or short-term lending rate was last cut on May 22, 2020. Since then, the rate has remained at a historic low of 4 percent.
In a report this week, the State Bank of India (SBI) said the central bank may significantly raise its inflation projections for the fiscal year 2022-23 and also reduce growth projections. It expects the RBI to continue with the pause on the short-term lending rate (repo).
“Prolonged growth supportive stance may have created problems of signal clearance and coordination, while rate cuts are being administered despite a consistent cut in inflation,” SBI said in the report.
As per the report, real rates have been consistently negative for a period of time and “RBI may prefer to make a disproportionate note by emphasizing inflation as a threat but at the same time emphasizing it has been completely forfeited! “
“We do not expect any change in policy rates. Subsequent actions may result in a change in the liquidity position which may alter the operating rate. High inflation is mainly due to supply-side issues which can be attributed to higher rates. While persistent inflation can become systemic, I think we still have some time before we get there,” Rajeev Shastri, Director and CEO, NJ Mutual Fund, said.
Industry body PHD Chamber President Pradeep Multani on Wednesday said the economy is still in the process of recovering from the hard impact caused by the coronavirus pandemic and a liberal policy stance would be inevitable at this juncture to strengthen economic fundamentals.
“While recent geopolitical developments tend to increase inflation, the status quo of policy rates will help the economy withstand the impact of external shocks,” he said.
“Since the last policy, a hawkish Fed and war in Europe have significantly increased the risk for inflation. Crude north of $100 will not only upset inflation expectations but also affect deficit estimates. However, Comments from both the Government of India and members of the MPC in the interim have been more towards allaying fears due to a spike in crude oil and focusing on supporting growth.Upping inflation expectations arising from a volatile global environment. Expect the MPC to maintain status quo while revising towards rising commodity prices, and supply chain disruptions due to war,” said Anand Nevatia, fund manager, Trust Mutual Fund.
The ongoing Russia-Ukraine conflict and rising oil prices are driving the cost of commodities higher, resulting in an increasing trend of inflation.
The government has ordered the central bank to keep inflation at 4 per cent with an upper and lower tolerance level of 2 per cent.
Following the MPC meeting in February, the RBI had decided to keep its key lending rates at a record low for the 10th consecutive meeting to support a sustainable recovery of the economy.
With PTI inputs