The Reserve Bank of India will announce its monetary policy decision at 10 AM today. The six-member Monetary Policy Committee (MPC) of the central bank will make the decision today after a three-day meeting that began on October 6.
RBI Governor Shaktikanta Das will announce the MPC's decision. The MPC is likely to remain on a pause mode on Friday as it awaits more cues from the growth-inflation front. The general consensus among economists is that the stance will remain ‘accommodative’.
Experts weigh in with their expectations
Dr M Govinda Rao, Chief Economic Advisor of Brickwork Ratings.
With the consumer price inflation easing from 5.59% in July 2021 to 5.3% in August 2021, improved supply situation on the back of the pandemic-led restrictions being relaxed, and capacity utilisation still in the recovery mode, there is no immediate pressure on the Monetary Policy Committee to either alter interest rates or change the accommodative stance.Thus, the MPC is likely to continue with the status quo. However, with recovery gathering some strength, the RBI may signal the mopping of excess liquidity, although the actual mopping up will be done in a calibrated manner. The policy statement will be important to gauge forward guidance from the MPC.
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd.
“While the economic environment has changed since the last policy, the MPC is likely to keep a status quo on interest rates and an accommodative stance. Economic activity has seen a good uptick and this is evident across almost all high frequency indicators. Consumption demand too is on the rise and this is expected to accelerate as we get into the festival season. These trends need to sustain for the MPC to shift its stance on interest rates. Inflation has come off since the last policy, however, supply side constraints and fuel hikes are likely to be inflationary.
Some global factors such as a crude price hike due to shortages in China and the UK and the Federal Reserve indicating that it is likely to begin tapering by the end of the year could cause volatility. The MPC will keep a watch on all these factors, with domestic growth and inflation likely to guide its policy stance. If the green shoots of economic recovery sustain, then it is possible to expect some steps in the latter part of the year on liquidity and the reverse repo. - Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd.
Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP.
"MPC is expected to maintain a status co both in rates and stance but there are lot of indications or factors which have either changed or expected to change in the near future, which could influence the decision. Though the inflation rate for august has been within the range of 4+_ 2 at 5.3% but has been above 5 for a long time now. Moody’s upgrading India’s outlook and gst collections above 1 lac crore for September and Improvement in manufacturing PMI, all indicate at a recovery. This could trigger the discussion of again retargeting inflation instead of focusing on growth. Drawing the excess liquidity from the market could be used as first measure by increasing the reverse repo, instead of increasing the repo rate to tackle inflation. However this decision may not be taken in this meeting but would definitely be discussed. Action could be taken in the next meeting. Overall MPC is expected to take some more time before biting the bullet on tampering the rates. Before the next quarter, the action of USA federal reserve would also be evident and MPC could wait and watch and then react to it."
Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities
The monetary policy meetings seem to have reached a stage where decisions from the RBI will be more keenly watched than what the MPC delivers. In the October meeting, the markets will be watching for RBI’s signals on addressing the liquidity glut along with the normalization of reverse repo rates. The MPC will likely continue to stick with the accommodative stance, for now, while keeping the repo rate unchanged.
With a mixed bag in terms of both growth and inflation outlook, the RBI and MPC will want to wait for a clearer picture. But as the economy recovers, and given the financial stability perspective, it is also essential to gradually withdraw the excess liquidity and reverse an ultra-low interest rate regime with likely incipient asset price dislocations.
The RBI needs to telegraph a path of normalization rather than let market expectations anchor unsuitably. The RBI has rightly focused on the near-term till now, and the October policy will be the perfect window to outline its thoughts on normalization, especially since the RBI will certainly want to avoid any sudden tightening.
