RBI Monetary Policy Committee Meet, December 6-8: Will RBI Hike Reverse Repo Rate?

RBI's Monetary Policy Committee (MPC) is going to meet to fix the country's economic policy and strategy, during December 6-8, this year. In the meeting, the MPC is going to happen at a time when the country is dealing with a high inflation rate, although the inflation rate has fallen from June-July level when it was above 6%. At present, the CPI inflation for October stood at 4.48%. The CPI inflation for November 2021, will be released on December 13, 2021. Just before that, the RBI MPC meeting is going to be highly important for investors and economists.

Although the inflation rate has been significantly high due to the pandemic, the central bank had to keep the repo rate at a historically down level, at 4%, and the reverse repo rate at 3.35%. Hence, loan borrowings by common people have been much affordable. Repo rate is the rate at which the RBI lends money to the commercial banks, which is used to control inflation. The reverse repo rate, on the other hand, is the rate at which the RBI will borrow money from the commercial banks, in the country, which is fixed to control the money supply in the country.

Keeping the repo rate down means the government is allowing or pushing more liquidity in the economy. But, the repo rate is down at that level for a very long time, and some economists thought that the RBI might hike the reverse repo rate now, to control the inflation rate.

Globally, economists seemed to be worried about the new Omicron Covid variant, and its contamination horizon. The delta variant already affected the global economy including the Indian economy extremely; the country's manufacturing sector, tourism sector, and employment level worsened this year. As the Omicron variant is highly transmissive, economists thought that this might again hit the economic activities down. However, the WHO has recently sounded positive and said that this variant is not as severe as the delta variant. So, the Indian government is also being positive but keeping some important travel guidance active.

But, according to reports, the SBI house economists have requested the RBI to delay liquidity normalization measures by a reverse repo rate hike. It is, according to them a 'prudent step' for the current economic situation that needs more time to recover fully. RBI in its research report stated, "We believe the talks of a reverse repo rate hike in the MPC meeting may be premature as RBI has been largely able to narrow the corridor without the noise of rate hikes and ensuing market cacophony."

So, keeping the reverse report rate at the same level as present, will be a wise step to follow. The RBI MPC will declare the monetary policy on December 8, economists are waiting for that to analyze the upcoming financial and economic trend of the country. The RBI is trying to keep the CPI inflation for Q1, FY 2023 at 5.2%, and the monetary policy will certainly follow that.