RBI Monetary Policy Committee LIVE: Reserve Bank of India’s bi-monthly Monetary Policy Committee (MPC) will end its three-day deliberations today. The six-member committee of central bankers is believed to have discussed the normalization of policy measures taken over the course of the last two years amid the pandemic. The MPC members are expected by some economists to go for a hike in the reverse repo rate which currently stands at 3.35%. The Repo rate has been left unchanged at 4% for two years now. With many countries having begun policy normalization and even the US Federal Reserve announcing a faster than expected rate hike cycle all eyes are on the RBI. The central bank had last revised the policy rate on May 22, 2020.
Economists and analysts are predicting a hike in the reverse repo rate between 20-40 basis points. However, a change in the monetary policy committee’s accommodative stance is unlikely and a change in repo rate also seems less likely to happen. “We expect overall policy guidance from the RBI to remain markedly more dovish than its global peers, as the output gap in India is likely to stay negative for longer, while inflation should broadly trend lower through 2022,” said Rahul Bajoria, Managing Director & Chief India Economist, Barclays.
RBI Monetary Policy Committee Today | RBI, Economy, RBI Live Updates
In a research note Emkay Global said recent auction cancellations due to high GOI cash balance could help soothe market nerves, but a huge supply next fiscal will require the RBI’s invisible hand in a more visible fashion, implying return of a pre-committed GSAPs. This, however, will interfere with the RBI’s aim of liquidity normalization, balance sheet preservation and a possible change in stance and repo hike(s) ahead, starting with a fixed RR hike.
Reserve Bank of India will be under pressure to fast-track monetary policy normalisation in the ongoing MPC meeting with the US Federal Reserve announcing a faster than expected rate hike cycle and domestic bond yields soaring, experts said. Unlike the past, rate hikes will follow the tight conditions in the money market, NR Bhanumurthy, Vice Chancellor of Dr BR Ambedkar School of Economics University said. “Previously policy rates provided lead to money market interest rates. This time it’s the other way round, RBI might have to follow the market conditions,” he added. Read more
“Growth concerns amid spread of the Omicron variant and relatively benign inflation outturns provide the RBI with enough room to maintain its growth-supportive monetary policies. Still, given the RBI’s liquidity management actions, we expect a Reverse Repo rate hike of 20-25bp in February,” Rahul Bajoria, chief India economist at Barclays said.
Reserve Bank of India Governor Shaktikanta Das will begin his address at 10 AM today to announce the MPC's decisions.
Even as the RBI may want to be cautious and gradual in its policy normalization, reversing some of the pandemic-related measures will need to start. We believe that the RBI should start normalizing the reverse repo rate by raising it 20 bps in the February policy.
