The monetary policy committee (MPC) of the Reserve Bank of India (RBI), led by Governor Urjit Patel, will on Wednesday disclose the outcome of its two-day meeting to review the central bank’s policy stance. Will the RBI reduce the key repo rate, or the rate at which it lends money to commercial banks? Or will it keep its cautious stance and maintain the status quo to keep a tab on inflation?
The market seems to be of the view that the six-member monetary policy committee will not change the policy repo rate. Besides rising inflation, the issues of hardening bond yields and tightening liquidity have reduced the scope for RBI loosen its stance.
Ten economists and bond dealers polled by Business Standard said the policy repo rate was expected to stay put at six per cent. Even as the policy stance would likely remain ‘neutral’, many economists said this could be the end of a rate-easing cycle.
It is unlikely that the Reserve Bank would lower its rates also given the fact that central banks across the globe are tightening their monetary stance. The interest rate spread will need to be maintained for foreign investors to put their money in Indian stocks and bonds.
In the October review of its monetary policy, the MPC had kept the benchmark interest rate unchanged and lowered its growth forecast for the country’s economy in 2017-18 to 6.7 per cent.
The central bank had last tinkered with the policy rate in August, when it brought the repo rate down by 25 basis points to a six-year low of six per cent.
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