The Reserve Bank’s rate-setting panel, Monetary Policy Committee (MPC), started its three-day deliberations on Wednesday amid expectations of a establishment on benchmark charge primarily on account of uncertainty over the affect of the second wave of COVID-19 pandemic.
Moreover, the fears of firming inflation can also chorus the MPC from tinkering with the rate of interest in its bi-monthly financial coverage end result to be introduced on Friday.
The RBI had saved key rates of interest unchanged on the final MPC assembly held in April. The key lending charge, the repo charge, was saved at 4 per cent and the reverse repo charge or the central financial institution’s borrowing charge at 3.35 per cent.
M Govinda Rao, Chief Economic Advisor, Brickwork Ratings mentioned the better-than-expected GDP numbers present the much-needed consolation to the MPC on the expansion outlook.
However, with the imposition of partial lockdown-like restrictions to include the virus unfold in a number of elements of the nation, the draw back threat on development restoration has intensified, he mentioned.
“Hence, the RBI is likely to continue with its accommodative monetary policy stance. Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Ratings expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” he famous.
Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com believes the RBI can preserve its accommodative stance in gentle of the financial affect of the second wave of COVID-19, with out endangering its key purpose of preserving inflation underneath management.
Reviving development has change into an necessary goal as a result of financial harm brought on by the latest lockdowns, he mentioned, and added the RBI must also think about offering extra liquidity to the National Housing Bank to allow the steadiness of housing finance firms, which in flip will permit the true property sector to increase.
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank was of the view that within the present atmosphere, the alternatives earlier than the Monetary Policy Committee could also be restricted.
“With the second phase of the pandemic impacting consumption and growth, the MPC will likely maintain status quo on policy rates, continue with an accommodative policy stance and ensure adequate liquidity in the system – all in an effort to stimulate growth. While it will keep one eye on inflation levels on the back of rising global commodity prices, it currently will focus on supporting economic growth,” Ekambaram mentioned.
According to Sandeep Bagla, CEO of TRUST AMC, “It is expected to be a no change policy, with continued economy friendly soft interest rate bias.”
The RBI annual report launched final week has already made it clear that “the conduct of monetary policy in 2021-22, would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis while ensuring inflation remains within the target.”
The Reserve Bank, the report added, would make sure that system-level liquidity stays comfy throughout 2021-22 in alignment with the stance of financial coverage, and financial transmission continues unimpeded whereas sustaining monetary stability.
In the evaluation of the RBI, the evolving CPI inflation trajectory is prone to be subjected to each upside and draw back pressures. The meals inflation path will critically rely on the temporal and spatial progress of the south-west monsoon in 2021.
The authorities has retained the inflation goal at 4 per cent with the decrease and the higher tolerance band of two per cent and 6 per cent, respectively, for the following 5 years (April 2021 – March 2026).
Retail inflation, based mostly on Consumer Price Index (CPI), slipped to a three-month low of 4.29 per cent in April primarily on account of easing of costs of kitchen objects like greens and cereals. The RBI primarily elements within the CPI whereas arriving at its financial coverage.
As per the RBI annual report, supply-demand imbalances might proceed to exert stress on meals objects like pulses and edible oils, costs of cereals might soften with bumper foodgrains manufacturing in 2020-21.