Mumbai: Reserve Bank of India (RBI) is likely to signify the beginning of the improvement of its accommodating monetary policy, introduced to the pillow of the economic impact of the pandemic, at the meeting next week, economists at Standard Chartered Bank wrote in research on Friday.
The consensus view is that the RBI will leave interest rates unchanged at the October 8 MPC meeting and only began to relax the accommodative monetary policy by reducing the gap between the repo and reversing the repo level early next year.
Some economists, including those in Stanchart, but have brought expectations of their policy normalization amid fears of increasing domestic inflation from high oil and global commodity prices and sharp increases in vaccination rates.
“We now expect the Indian Monetary Policy Committee (MPC) to climb the repo level of 40 basis points to 3.75% at the December 2021 and February 2022 policy meeting; we have estimated the increase in February and April 2022,” Standard Chartered said economist .
They expect MPC to increase the key repo level only in August 2022 but said the previous rise risk had increased.
They also recognized the risk of nominal increase in the reverse repo level on October 8, due to higher cut-off at the recent variable rate.
“Unlike the cut-off / size and Tenor Vrrr, the increase in the ratio of the reverse repo is a signal that is stronger than policy normalization, in our view,” economists said.
“We think a stronger signal is guaranteed when the risk of other infection surge is largely ruled out.
In addition, with India entering the festival season, monetary policy that supports the possibility of helping sentiments and demand,” he added.
Nomura also expects a 40 bps reserve rate hike in December and a total of 75 BPS repo and reverses the increase in repo interest rates throughout 2022.
“We still believe that the RBI normalization strategy will depend on the prospect of growth,” Rahul Bajoria, “Rahul Bajoria,”, “,” Economists at Barclays said in a research note.
“Macro indicators show that the level of Indian activity has begun to normalize, and with the economy recovering faster than anticipated, the RBI has more choices to calibrate out, both through communication and action, in our view,” he added.