Analysts expect that Reserve Bank of India (RBI) MPC may not slash policy rates this timeRBI Monetary Policy LIVE: Reserve Bank of India (RBI) will shortly announce the resolution of the sixth bi-monthly monetary policy committee (MPC) meeting later today. Earlier in October, the central bank kept the interest rates unchanged at 4 per cent and maintained the accommodative stance in view of heightened retail inflation. Expressing concern on inflation, the MPC decided to ‘maintain the stance for as long as it is necessary to revive growth’. The RBI Governor had also said that the real GDP in the current fiscal year may contract by 9.5 per cent. Since February this year, it has cut policy rates by 115 basis points. Analysts expect that RBI may not slash policy rates this time as well. Similarly, industry body Assocham said that RBI’s key focus in the ongoing policy review meeting is likely to be on ensuring adequate liquidity in the system while maintaining an accommodative stance. However, from July 2019 to August 2020, the RBI has cut its policy rate by a cumulative 250 bps.
Highlights
We will likely see RBI upgrade its growth outlook, wherein the Central bank will scale down on its earlier pessimistic GDP projection of 9.5% for FY21. Similarly, RBI will also update on the inflation trajectory, when compared with the earlier expectations of CPI moderating in Q4 FY21: Amar Ambani, Senior President & Institutional Research Head at YES SECURITIES
We also believe that the MPC may not do much on the non-interest rate tools, as significant measures (OMOs, TLTROs) have already been unleashed during the last policy meeting. The fact that liquidity remains high, while growth is gaining traction, makes us feel that RBI will adopt a wait-and-watch approach for next few months: Amar Ambani, Senior President & Institutional Research Head at YES SECURITIES
With frequency indicators and GDP data conveying meaningful rebound in economic activity and retail inflation remaining stubbornly high, we not only expect the RBI to maintain status quo in Dec-20 policy meeting, but the minimal chance of a 25bps rate cut in Feb-21 also appears to be fading away: Amar Ambani, Senior President & Institutional Research Head at YES SECURITIES
Markets are also expecting the RBI to maintain the status quo and have discounted the fact that if RBI keeps the benchmark rates the same, it is going to be a non-event from the market perspective. Although, we might see higher degree of volatility in rate sensitive stocks (Banking, NBFCs, Automobile, Real Estate) till the time policy is announced. In order to bring the economy back on a positive growth trajectory, RBI is expected to continue with the low rate regime for some more time before it decides to reverse its stance: Gaurav Garg, Head of Research, CapitalVia Global Research Limited
Analyzing the current scenario, RBI might rest their decision to continue with the status quo. However, in my opinion inflation figures might be at a higher level, but still RBI would not consider this as a time to start reversing the policy of low-interest rates as the GDP growth data for past 2 quarters has been negative and as of now growth is going to take priority over inflation: Gaurav Garg, Head of Research, CapitalVia Global Research Limited
The Indian economy is witnessing a V-shaped recovery as the Gross Domestic Product (GDP) has recorded a quarter-on-quarter growth of 23 per cent in the July-September quarter of this fiscal, according to the Finance Ministry’s latest Monthly Economic Review. The decline in the GDP narrowed to 7.5 per cent in the second quarter of this financial year, over 23.9 per cent in April-June quarter.
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India’s economy, severely affected by the coronavirus pandemic, is gradually recovering, the International Monetary Fund said on Thursday. India’s economy recovered faster than expected in the September quarter as a pick-up in manufacturing helped GDP clock a lower contraction of 7.5 per cent and held out hopes for further improvement on better consumer demand.
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“We expect the RBI to retain the policy rate at 4 per cent and continue with the accommodative policy stance despite the buildup in inflationary pressures,” Madan Sabnavis said.
Madan Sabnavis, Chief Economist, Care Ratings said the six-member MPC is expected to factor in its decision making the nascent signs of improvement in the domestic economy while also recognising the fragile nature of this recovery and the underlying downside risks.
The upcoming RBI MPC policy will likely be a damp squib on conventional policy actions with inflation sticky at over 7% in the near term. While growth concerns and sub-optimal fiscal response may keep MPC’s stance accommodative, the inflation trajectory hints that the bar for further conventional rate cuts becomes high for the rest of FY21. We expect the RBI to raise its inflation and growth forecasts in the upcoming policy: Emkay Global Financial Services
In its last MPC meeting in October, RBI kept policy rates unchanged to help tame inflation that in the recent times has surged past 6 per cent mark. RBI projected the country’s GDP to contract 9.5 per cent in the current financial year due to the pandemic. It has cut policy rates by 115 basis points since February.
The Reserve Bank of India’s (RBI) key focus in the ongoing policy review meeting is likely to be on “ensuring adequate liquidity” in the system while maintaining an “accommodative” stance, industry body Assocham on Thursday said. It also said that the accommodative stance would reflect the RBI’s commitment to keep the lending rates benign to support growth, hit by the COVID-19 pandemic.
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