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RBI'S Monetary Policy Committee starts deliberation on policy rate

03 Décembre, 2020, 03:08 | Auteur: Auguste Feret
  • Eye on high retail inflation, RBI may maintain status quo

With the rate cuts unlikely, the RBI has infused liquidity into the system via targeted long-term repo operations, under which banks have been able to borrow up to Rs 1 lakh crore and invest in bonds in companies. RBI projected the country's GDP to contract 9.5 per cent in the current financial year due to the pandemic.

In the view of the Deutsche Bank Chief Economist Juliana Lee, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is expected to maintain status-quo on the interest rates, although the tone may turn neutral in December when compared to a dovish tilt that was seen in October.

"As such, we think nurturing growth will remain central to monetary policy and the RBI is likely to repeat the guidance provided in the October policy review", said Bajoria. Supply side issues like higher commodity prices, unseasonal rains and labour shortages are the key reasons behind the high inflation, say analysts. He further said RBI may upgrade its growth outlook, wherein the central bank would scale down on its earlier pessimistic GDP projection of 9.5 per cent for 2020-21.

"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", Care Ratings said. On expectation from the RBI on policy rate front, Sachin Chhabra, founder, Peel-Works Pvt Ltd said active interventions by the government through stimulus measures and the central bank through the monetary policy have helped many segments of the economy to claw back to normalcy.

"On balance, we do expect a stronger rebound in economic activity in the second half of FY21, relative to our earlier assessment, with regional and sector unevenness in the pace of the recovery".

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Jyoti Prakash Gadia, Managing Director, Resurgent India opined the RBI is expected to follow a "wait and watch" approach while deciding about the repo rate this week.

"However, the accommodative stance would persist to support the expected economic revival that continues to be threatened by the pandemic", said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research. It also remains the best quarter-on-quarter growth since 1996 when the country started giving out quarterly numbers. Economists and market participants are closely watching the commentary from the RBI around liquidity.

In October, CPI (consumer price index) inflation grew to 7.61 per cent, its highest level since 2014.

In its October policy review, the committee chose to continue with the accommodative stance as long as necessary - at least during the current financial year and into the next financial year - to revive growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target (of 4 per cent within a band of +/- 2 per cent) going forward.

Retail inflation in October touched a six-year high of 7.61 per cent.

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