The Reserve Bank of India (RBI) is likely to maintain status quo on benchmark interest rate in its first monetary policy meet of this fiscal, scheduled on 7 April. Experts believe that the central bank will go for a “dovish pause” on Wednesday. “The RBI could likely keep rates unchanged and maintain an accommodative stance for next several months, despite a gradual build-up in inflationary pressures,” said Siddhartha Sanyal, chief economist and head – research, Bandhan Bank.
The central bank’s monetary policy committee cut rates by 135 basis points over five straight meetings last year. However, it kept the policy repo unchanged at 5.15% due to growing concerns over inflation in December.
The retail inflation hit a five-year high of 7.35% in December. The central government earlier maintained the central bank’s target to ensure inflation to be within 2-6% band for five more years.
“The meeting of the Monetary Policy Committee in April is the first meeting after the decision to retain the inflation target. Though the Consumer Price Index of February has increased to a level more than 5%, it is still within the acceptable range. Hence, the MPC is expected to maintain the status quo both in terms of the interest rate and its accommodative stance,” opined Divakar Vijayasarathy, founder and managing Partner, DVS Advisors LLP.
“The second wave of virus hitting the country will have an impact on growth. With inflation above RBI’s target, we believe the central bank will continue to focus on forward guidance on open market operations, rates and liquidity to steer the markets, particularly when global yields led by United States have started hardening. So far in 2021, the US 10 year yield has increased by 79 bps, compared with 26 bps increase in case of India,” said Sameer Narang, chief economist, Bank of Baroda.
Price stability, growth and financial stability will be the prime focus areas for the Reserve Bank of India going forward, said economists at Bofa Securities.
According to a Reuters poll, the analysts expect the committee to keep the repo rate steady at the current 5.15% until October.
“India is witnessing a second wave with partial lockdowns being imposed across different states and cities. In such a scenario, the RBI will seek to maintain status quo rather than getting adventurous,” said Anuj Puri, chairman – ANAROCK Property Consultants.
One expert said that the central bank committee might change its policy stance to “neutral” from “accommodative” and keep the interest rates unchanged. “We expect the MPC to be a neutral policy stance where the rates will remain unchanged to keep inflationary pressures contained while preserving financial stability,” said Rohit Poddar, managing director, Poddar Housing and Development Ltd and joint secretary, NAREDCO Maharashtra.
On economic growth, Siddhartha Sanyal said, “Further revival of economic growth will critically hinge on consumer confidence, which is still subdued, improving further. Against the backdrop of a large government borrowing and renewed uncertainties with fresh surge in COVID infections, a key challenge for the RBI is to maintain orderly conditions in financial markets”