RBI Likely To Maintain Status Quo On Key Rates During Monetary Policy Panel Meet

Keeping inflationary concerns in mind, the Reserve Bank of India (RBI) is likely to maintain status quo on key policy rates in its next bi-monthly economic policy, which will be the first after the presentation of the union budget for 2022-23.

Experts, however, are of the opinion that RBI's monetary policy committee (MPC) may change the policy stance from 'accommodative' to 'neutral' and tinker with the reverse-repo rate as part of the liquidity normalisation process.

The next bi-monthly monetary policy is scheduled to be announced on February 9 at the end of three-day deliberations of the MPC which commence tomorrow (February 7).

Madan Sabnavis, Chief Economist, Bank of Baroda, said given the assurance on growth as per the budget and the possibility of inflation rising mainly due to crude oil, "we expect the RBI to start the process of normalisation by increasing the reverse repo rate by 25 bps".

There will be no change in the repo rate this time even though a 50 basis points hike is expected next year, Sabnavis said adding there could be a slight downward revision in the GDP growth rate for FY22.

"Will there be a change in stance? Probably not this time thought the hike in reverse repo rate will send signal of future direction of rates," Sabnavis opined.

Shanti Ekambaram, Group President, Consumer Banking, Kotak Mahindra Bank, said amidst global inflation pressures, tightening monetary policies by global central banks, high oil prices, domestic inflation, and the sharp rise in domestic yields, the MPC will have a tight rope-walk as they discuss the monetary policy stance and interest rates in the coming week.

"Given that the overnight call rate is closer to 4 per cent, we expect the RBI to change the reverse repo rate by up to 25 bps or make repo the operative rate. While a repo rate hike is not expected, it is possible that the MPC might change its stance to neutral from accommodative," Ms Ekambaram said.

The last MPC held in December 2021 had kept the benchmark interest rate unchanged at 4 per cent and decided to continue with its accommodative stance against the backdrop of concerns over the emergence of the new coronavirus variant Omicron. It was the ninth time in a row that the rate setting panel had maintained the status quo.

Aditi Nayar, Chief Economist, ICRA, expects a status quo this time from the MPC. According to her, policy normalisation is set to commence in April with a stance change and reverse repo hike. "Subsequently we see two 25bps repo hikes over the next two reviews," she added.

The RBI has been tasked by the government to keep the interest rate in the range of 2-6 per cent.