India's Growth forecasts
Most growth forecasts for the Indian economy are now in single digits. Most recently, rating agency Moody’s pegged India’s GDP growth in FY22 at 9.3%.
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RBI Monetary Policy Live Updates: RBI to Surprise or Maintain Status Quo? Decision Shortly
RBI Monetary Policy Committee Live Updates: The key lending rates is likely to continue at 4 per cent and the reverse repo rate or the central bank's borrowing rate will be at 3.35 per cent
The Reserve Bank of India (RBI) Monetary Policy will be announcing its decision on Friday. Will the central bank make a surprise announcement or maintain a status quo in interest rates? Experts believe that RBI is likely to keep the policy rates unchanged and maintain accomodative stance amid the growing uncertainty over COVID-19 pandemic. The fears of firming inflation might also refrain the MPC from tinkering with the interest rates on June 4.
The key lending rate — the repo rate are likely to continue at 4 per cent and the reverse repo rate or the central bank’s borrowing rate will be at 3.35 per cent. “The economic outlook remains uncertain in light of the continuing pandemic. We expect the monetary policy stance to remain accommodative for a large part of 2021, until the vaccine coverage improves dramatically,” said Aditi Nayar, chief economist at ICRA.
“The better-than-expected GDP numbers provide the much-needed comfort to the MPC on the growth outlook,” said M Govinda Rao, chief economic advisor, Brickwork Ratings. “The RBI Governor Shaktikanta Das faces a tough task this time, with a confluence of challenging parameters emerging in the economy on account of the second wave of covid and lurking uncertainties. The present double-digit wholesale price inflation is going to lead to a rapid jumping of retail inflation too, with a lag effect. This could prompt RBI to shift to a hawkish stance. However, in revival and sustenance, a bold approach is expected and desired from RBI with no change in repo rate,” said Jyoti Prakash Gadia, managing director, Resurgent India.
Ranen Banerjee, PwC India
Ranen Banerjee, PwC India Leader (Economic Advisory Services): The heightened risk of inflation, owing to the higher input costs and petroleum prices, will constrain the MPC in taking any rate-related action. We are in for a long pause with open market operations as a tool that will be employed more frequently towards keeping the 10-year yields close to six percent.
RBI MPC on June 4: When and Where to Watch
Reserve Bank of India tweeted: Watch out for the Monetary Policy statement of the RBI Governor @DasShaktikanta at 10:00 am on June 04, 2021 YouTube: https://youtu.be/adn3YQ2iqIA. Post policy press conference telecast at 12:00 noon on the same day. YouTube: https://youtu.be/kbY0_YqILoo
More enablers from RBI may be announced: Yes Bank Economists
"The room available for traditional monetary policy is increasingly becoming constricted. In the absence of any further opportunity to cut rates, we expect the RBI to continue to use its balance sheet to keep financial market conditions easy," said Yes Bank economists.
Further measures from the RBI could include:
1) More flexibility to banks to implementing restructuring plans in light of the hit to the economy due to the second COVID wave.
2) Similar to the COVID loan book for healthcare related sectors, the RBI can expand the scope for incremental lending to MSME and small businesses and an equal amount can be placed with the RBI at 25 bps lower than the repo rate.
3) Reduction in risk weights on bank lending to NBFCs/MFI that exclusively lend to MSMEs and small businesses.
On Inflation: Yes Bank Economists
"On inflation, we expect the MPC to retain its projection of Headline CPI at around 5.0% level, similar to ours. Despite upside risks core inflation, on account of supply chain disruption, higher commodity prices, and pass-through of higher prices to end-consumers, the MPC is likely to draw comfort from the headline inflation remaining within RBI’s target band of 2-6% for FY22, and lower than FY21 print of 6.2%. We think that the RBI will tilt towards its efforts to kick-start growth and see through the inflation risks for the moment. Despite this, the MPC will not be able to bring down policy interest rates further as real policy rates are anyways in the negative zone. Further, savings interest rates at the 1-year point are mostly negative too and any further cuts in the interest rate can hurt the savers. Thus, the stance of monetary policy will be maintained while ensuring adequate liquidity in the system. Overnight call money rates are currently below the reverse repo rate and the RBI would continue to remain comfortable with the same," said Yes Bank Economists.
RBI Must Acknowledge Growth Hit: Yes Bank Economists
"Though the lockdown in the second wave is less stringent than the first and mobility indices have contracted at a lesser pace than last year, the decline in consumer sentiment remains evident. High frequency indicators like decline in E-way bills, moderation in PMI manufacturing, sequential contraction in vehicle registrations, and high unemployment rates already highlight the stress in consumption demand. In our view, despite unlocking of the economy in mid/end June, consumption demand is unlikely to recover steadfastly due to increased economic costs and health related uncertainty going forward," said economists at Yes Bank.
RBI Policy: No headline changes
With the backdrop of growth related headwinds in both urban and rural sectors, increase in economic uncertainty, and rise in inflationary pressures, the RBI is expected to signal continuation of easy financial conditions and keep the repo and reverse repo rate unchanged, said economists at Yes Bank.
RBI Monetary Policy Meet: What to Expect
The Reserve Bank of India (RBI) is likely to maintain status quo on benchmark interest rate in its second Monetary Policy Meet this fiscal. The central bank is expected to keep the benchmark interest rate unchanged given COVID-19 uncertainty and fears over inflation.
Reserve Bank of India is likely keep the policy rates unchanged and maintain accomodative stance on June 4
