The Reserve Bank of India (RBI) will announce its bi-monthly monetary policy on Friday and the central bank is expected to opt for the status quo on interest rates amid inflationary concern.
According to PTI, the RBI is likely to maintain the status quo on interest rates and "watch the developing macroeconomic situation for some more time" before taking any decisive action(s) on monetary policy.
Experts are of the view that the RBI may prefer to wait and watch for some more time before taking any major action on the monetary policy front as the central bank's focus is on managing inflation as well as supporting economic growth.
The central bank had left the benchmark interest rate unchanged at 4 per cent at the June policy meeting. It was for the sixth time in a row that the MPC maintained the status quo on interest rates.
"We expect the accommodative stance of the RBI to continue at least for the next 6-8 months, as normalcy returns. Demand for vehicles in 2021 on a yoy basis had improved, however Since Mar-21 demand has been lukewarm. Low interest rates will bring back pent up demand for the 2 wheeler market. For MSMEs, credit cycles have got stretched and low interest rates will benefit cash flows," said Y S Chakravarti, MD & CEO, Shriram City Union Finance.
CARE Ratings said, it does not expect any change in the policy rates but would keenly follow the commentary provided by the Governor on the state of economy. Presently the growth signs look better based on some leading indicators and it would be interesting to see how the MPC views the growth scenario for the year. The same holds for inflation which is elevated.
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd., said, “While the expectation is for a status quo policy, in terms of interest rates and stance, what will be important to gauge is the Monetary Policy Committee’s assessment on the economy and hence, the path forward from here on. Among a host of factors, it is the durability and sustainability of India’s growth curve, in addition to inflation, that will drive its decision making.”
M Govinda Rao, the chief economic advisor of Brickwork Ratings, said the MPC has kept key policy rates unchanged since May 2020, after having brought them down to a record low of 4 per cent from 5.15 per cent through two rate cuts (75 bps in March 2020 and 40 bps in May 2020), to assuage the economic consequences of the COVID-19 pandemic.
Moreover, the MPC has continued with the accommodative policy stance after changing it from neutral in June 2019.
"We expect the RBI MPC to hold the repo rate at 4 per cent and continue to be accommodating to support the nascent recovery, in the upcoming MPC. We also expect it to sound a cautionary note and emphasise the need to closely monitor the situation," Rao said.
Vikas Wadhawan, Group CFO, Housing.com, Makaan.com, and PropTiger.com, said, "We expect RBI to continue the status quo in its monetary policy."
He said historically low interest on home loans has played a major role in the gradual revival of housing demand, which was badly impacted during April-June 2020 because of the nationwide lockdown to control COVID-19.
"Higher commodity prices and rising global prices post the robust recovery in a few industrial countries will have implications on production costs," Rumki Majumdar, an economist with Deloitte India, was quoted as saying by PTI.
Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mutual Fund, said, “The MPC meets at the cusp of a visibly sticky inflation, nudging growth phase and a fluid pandemic situation world over. The central banker is mostly likely to maintain a status quo on rates being mindful of growth and wait for more data points on inflation front. There could be some steps towards normalisation of liquidity via increased tenor and/or quantum of VRRR (variable rate reverse repo) – something which bond markets seem to be anticipating.”
