New Delhi: In the midst of rising economic uncertainty due to a sharp rise in Covid-19 cases across the country, economists and analysts believe that the central bank will maintain a status quo on policy rates during its next monetary policy meeting. The Monetary Policy Committee is scheduled to meet for its bi-monthly policy meeting starting April 7.
According to a report from Dun & Bradstreet Global Chief Economist Arun Singh, the recent surge in the Covid-19 cases and the restrictions imposed by several states will affect the pace of revival of industrial production. Long-term yields are also hardening, leading to rise in borrowing costs.
“In this context, the Reserve Bank of India faces the difficult task of managing the inflationary pressures while preventing a rise in the borrowing cost. Despite the rising inflationary pressures, we expect the RBI to keep the policy repo rate unchanged in the forthcoming monetary policy review,” he observed.
UBS Securities India economist Tanvee Gupta Jain also expects the RBI to maintain comfortable liquidity levels in the near term to ensure the least disruption to the government’s borrowing programme. “We continue to expect the central bank to pursue policy normalisation in the second half of FY22 to keep inflationary pressures contained and preserve financial stability.
In our base case, we expect the MPC to shift towards a neutral policy stance and/or pursue reverse repo rate hikes (25-40bp) without recourse to policy (repo) rate hikes in FY22. We expect the repo rate to be hiked by 50 bps but only towards H2FY23,” Jain said.
However, an Anand Rathi report pointed out that the hardening of retail inflation again over past three months would put the RBI under pressure to review the extent of monetary and liquidity accommodation. “Hardening of core inflation would be of special discomfort. Despite these, the continued growth concern is likely to keep monetary policy accommodative during 2021,” the brokerage said.