RBI set to keep benchmark interest rate on Friday, experts say

MUMBAI: Amid concerns about inflation and lingering uncertainty about the second wave of the COVID-19 pandemic, the Reserve Bank of India (RBI) is expected to keep the benchmark interest rate at existing levels during its next monetary policy review, experts believe.
The next bimonthly monetary policy review is expected to be announced on June 4, following the Monetary Policy Committee (MPC) meeting which begins on Wednesday. The meeting of the rate-setting committee, chaired by RBI Governor Shaktikanta Das, is scheduled for June 2-4.
The RBI had kept key interest rates unchanged after the last MPC meeting in April. The policy loan rate, the repo rate, was kept at 4 percent and the repo rate or central bank borrowing rate at 3.35 percent.
The RBI’s annual report, released last week, has already made it clear that “the conduct of monetary policy in 2021-2022 would be guided by changing macroeconomic conditions, with a bias to remain pro-growth until to gain ground on a sustainable basis while ensuring that inflation remains on target. ”
The central bank, the report added, would ensure that system-level liquidity remains comfortable over the period 2021-2022, is aligned with the stance of monetary policy, and that monetary transmission continues unimpeded. while maintaining financial stability.
In the RBI assessment, the evolution of the CPI inflation path is likely to be subject to both upward and downward pressure. The trajectory of food inflation will critically depend on the temporal and spatial progression of the southwest monsoon in 2021.
“The increased risk of inflation, due to higher input costs and oil prices, will force the MPC to take rate action.
“We are in a long hiatus with open market operations as a tool that will be used more frequently to keep 10-year yields close to 6%,” said Ranen Banerjee, leader of PwC India (economic advisory services).
Expressing a similar view, CIFAR Chief Economist Aditi Nayar said that with the economic outlook remaining uncertain in light of the continuing pandemic, “we expect the stance of monetary policy to continue. remains accommodating for much of 2021, until immunization coverage improves significantly ”.
“We estimate that the average CPI (consumer price index) inflation will moderate to 5.2% in 2021-2022 compared to 6.2% in 2020-2021,” she said.
Nayar added that nonetheless, it will remain well above the midpoint of the MPC’s renewed medium-term target range of 2-6%, ruling out the possibility of further rate cuts to support economic activity and sentiment.
The government has kept the inflation target at four percent with a lower and upper tolerance range of two percent and six percent, respectively, for the next five years (April 2021 to March 2026).
Moneyboxx Finance Financial Controller Viral Sheth said given the growing risk of inflation, “we expect a status quo with regard to key rates in the next monetary policy.”
He also stressed that it is imperative for the RBI to ensure sufficient credit flow to the rural economy. Setting up a special window for rural-focused and smaller NBFCs will help immensely, Sheth said.
He added that alternatively, the central bank should consider increasing or relaxing the exposure limit of banks to non-bank financial corporations (NBFCs), especially smaller ones.
Bank of India Managing Director and CEO Padmaja Chunduru said the MPC will closely monitor inflation.
“Since the economy is not yet fully open and the uncertainty around vaccination persists, I think they will always keep the interest rate where it is,” Chunduru said.
Regarding his expectations, NAREDCO National Chairman Niranjan Hiranandani also said the central bank would likely maintain an accommodative stance.
“The second wave of the COVID-19 pandemic has had an impact on the economy; there is a need to improve the liquidity of the system, especially for struggling industries, ”he said.
He added that appropriate measures to ensure that banks no longer obtain non-performing assets (NPAs) need to be taken, including measures related to the Insolvency and Bankruptcy Code (IBC).
Andromeda and Apnapaisa CEO V Swaminathan said inflation is a major concern ahead of the next monetary policy review.
With gasoline prices reaching Rs 100 per liter, the common man was affected by this, he said. “I expect the RBI to announce more measures to give our COVID-19 battered economy some much-needed room for growth.”
Retail price inflation, which is based on the CPI, fell to a three-month low of 4.29% in April, mainly due to lower prices for kitchen items like vegetables and vegetables. cereals. The RBI primarily takes the CPI into account when developing its monetary policy.
According to the RBI annual report, imbalances between supply and demand could continue to put pressure on food products like pulses and edible oils, cereal prices could fall with exceptional production of food grains in 2020-2021.
If the RBI maintains the policy rate status quo, this would be the sixth consecutive time the central bank has kept the policy rate unchanged. The RBI last revised its key rate on May 22 in an off-policy cycle to revive demand by cutting the interest rate to an all-time low.

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