RBI Likely To Maintain Status Quo On Key Rates To Support Growth: Experts
The Reserve Bank of India (RBI) is likely to maintain status quo on interest rates in its upcoming monetary policy review, but the upper tolerance limit for retail inflation may change in view of global uncertainties created by the ongoing Russia-Ukraine war. . Experts feel the urgency to save and promote growth.
RBI’s Monetary Policy Committee (MPC) headed by Governor Shaktikanta Das will hold its first meeting of 2022-23 from April 6 to 8. It will announce a decision on lending rates on April 8.
Aditi Nair, chief economist at rating agency ICRA, said the MPC is expected to revise its consumer price index (CPI) based inflation or retail inflation forecast, while reducing its growth forecast for 2022-23.
“Nevertheless, the MPC is unlikely to sacrifice growth to contain imported inflation. With the upper limit of the medium-term inflation target range being as high as 6 percent, the MPC is more likely to support growth over a longer period of time than other central banks. is likely to remain in place. Overall, we expect a status quo policy in April 2022,” he said.
Given the current uncertainties, Suman Choudhary, chief analytical officer, Acuite Ratings & Research, said the RBI has “limited scope for tightening monetary policy”.
Amid the damaging impact of the war, the RBI will take a tough stance on its monetary policy decisions, strive to contain inflation within a tolerance range, while simultaneously supporting nascent growth impulses, he said.
“Going forward, we expect the RBI to restore the LAF corridor width to its pre-pandemic levels by increasing the reverse repo rate by 40 bps in the policy review for June-August 2022, followed by a cumulative 50 bps increase in the repo rate. The bps will increase. The rest in 2022-23,” Chowdhury said.
On the other hand, Dhruv Aggarwal, Group CEO, Housing.com, Makaan.com and PropTiger.com, said it would be difficult for the RBI to maintain the position given the increase in inflationary pressures due to the war in Ukraine. Maintain the status quo on key policy rates in your upcoming monetary policy.
“While this will hurt the recovery process in India after the disruptions caused by various waves of the coronavirus pandemic, the RBI may not have the flexibility to avoid rate hikes,” he said.
Mr Agarwal further added that any upward move at this stage could have an impact on real estate as well, but the March quarter figures show that the real estate sector is in a strong position to continue to cover the ground lost due to this. could. Pandemic on strong demand.
Japanese brokerage firm Nomura said in a research report that the RBI may re-evaluate its estimates for both GDP growth and CPI inflation in the upcoming policy meeting.
However, the RBI may suggest that inflationary pressures are temporary, that inflation will remain below its 6 per cent upper limit, and that monetary policy should support growth.
Hence, even as there is a reasonable possibility that the RBI will take its first reluctant step towards policy rate normalization by changing its stance from ‘accommodative’ to ‘neutral’ in its April 8 meeting, it will be accompanied by a generous guidance. There is a possibility of balancing, it said.
The report said, “We believe that the RBI is overly optimistic on inflation, and a definite correction in monetary policy is needed. We expect a policy pivot in June and therefore an increase in the cumulative repo rate hike in 2022.” Are building in 100bp.”
Following the February MPC meeting, the RBI had decided to keep its key lending rates stable at a record low for the 10th straight meeting to support the economy’s sustainable recovery from the COVID-19 pandemic.