Mumbai: Given inflation problems, bank reserves are likely to maintain the status quo at the main policy level in the next two-month economic policy, which will be the first after the Union budget presentation for 2022-23.
Experts, however, argue that the RBI (MPC) monetary policy committee can change policy attitudes from ‘accommodating’ to ‘neutral’ and thinning with a reverse-repo level as part of the process of normalizing liquidity.
The next bi-monthly monetary policy is scheduled to be announced on Wednesday at the end of MPC’s three-day deliberations starting Monday.
Madan Sabnavis, chief economist, the Bank of Baroda, said that given the guarantee on growth in accordance with the budget and the possibility of inflation increased mainly due to crude oil, “we expect the RBI to begin the process of normalization by increasing the reverse repo level by 25 bps”.
There will be no change at the Republican level this time despite the 50 basis point increase in the expected next year, Sabnavis said it might be a little revision down at the GDP growth rate for FY22.
“Will there be a change in attitude? Maybe not this time thinking the increase in the reverse repo ratio will send a signal direction of interest rates in the future,” Sabnasis scaly.
Shanti Ekambaram, President of Group, Consumer Banking, Box Mahindra Bank, said in the midst of global inflationary pressures, tightened monetary policy with global central banks, high oil prices, domestic inflation, and a sharp increase in domestic results, MPC would have a strict strap Walk when they discuss the attitude of monetary policy and interest rates in the coming week.
“Given that overnight call rates are closer to 4 percent, we hope the RBI changes the reverse repo level of up to 25 bps or creates an operative level repo.
While the repo interest rate increase is not expected, it is possible that MPC might change its attitude to be neutral from accommodating,” said Ekambaram.
At the expectations of MPC, Shruti Aggarwal, Co-Founder, Stashfin, said Indian GDP growth, which is estimated to reach 9.2 percent for 2021-22 will be one of the fastest globally.
To maintain and achieve this growth rate, it will challenge the government to balance inflation up and risks associated with uncertainty around Covid and oil prices.
“With Covid appeared to subside, increased demand can be estimated.
Hike in interest rates that maintains about 6 percent of inflation will help in encouraging liquidity.
Clear strategies about inflation and liquidity must be more directed at increasing investment.
We are optimistic about economic growth,” said Aggarwal.
The last MPC held in December 2021 has maintained its benchmark interest rate unchanged at 4 percent and decided to continue its accommodating attitude towards the background of concern over the emergence of the new Coronavirus variant.
It is the ninth time in a row that the tariff setting panel has maintained the status quo.
Aditi Nargging, Chief Economist, ICRA, expects the status quo this time from MPC.
According to him, the policy normalization will begin in April with a change in attitude and reverse the repo increase.
“Next we see two repo 25bps increases for the next two reviews,” he added.
Arvind Chari, CIO, quantum advisers argue that with the government well and actually accept coats to revive growth, RBI no longer need to prioritize inflation growth.
Their current attitude of ‘accommodating policy as long as it is necessary to revive growth’ needs to be changed.
Given that the economy has recovered and does not require a lower level or higher liquidity, MPC must change the attitude of monetary policy to be neutral, Chiti said.
Reserve Bank has been assigned by the government to keep interest rates in the range of 2-6 percent.
Bank Baroda owned by the state in a research record said inflation remained worrying.
Inflation The consumer price index has been observed lately when it rose to 5.6 percent from December 2021 from 4.9 percent in November 2021.
Given the surge in crude oil prices, along with the increase in global commodity prices, these factors are most likely to overwrite inflation.
Furthermore, once the state selection ends, inflation is expected to increase further because the price of fuel is changed, he said.
RBI is likely to maintain the status quo at the policy level next week, the experts said
