File Photo of RBI Governor Shaktikanta Das
The Reserve Bank of India’s (RBI) bi-monthly monetary policy review is scheduled from June 2-4 with Governor Shaktikanta Das expected to announce the Monetary Policy Committee’s (MPC) decisions on June 4.
Experts told PTI the central bank is likely to keep the benchmark interest rate unchanged given COVID-19 uncertainty and fears over inflation. Repo rate (lending rate) is likely to continue at 4 percent and reverse repo rate (RBI’s borrowing rate) at 3.35 percent.
The panel had also left rates unchanged during the last MPC meet in April 2021.
The feeling is also backed by the RBI’s annual report released in May, which stated that 2021-22 monetary policy would be guided by “evolving macroeconomic conditions” till durable growth is achieved “while ensuring that inflation remains within target”.
As per the RBI’s assessment in its report, evolving Consumer Price Index (CPI) inflation trajectory “is likely to be subjected to upside and downside pressures”, while food inflation will “critically depend” on the monsoons.
It added that the central bank would ensure comfortable system-level liquidity during 2021-22 in alignment with its monetary policy stance and maintain financial stability while ensuring that transmission continues “unimpeded”.
This would be the sixth consecutive time the RBI maintains status quo if rates remain unchanged on June 4.
Here’s what the experts have to say:
Ranen Banerjee, PwC India Leader (Economic Advisory Services): The heightened risk of inflation, owing to the higher input costs and petroleum prices, will constrain the MPC in taking any rate-related action. We are in for a long pause with open market operations as a tool that will be employed more frequently towards keeping the 10-year yields close to six percent.
Aditi Nayar, Chief Economist at ICRA: The economic outlook remains uncertain in light of the continuing pandemic. We expect the monetary policy stance to remain accommodative for a large part of 2021, until the vaccine coverage improves dramatically. We estimate the average CPI inflation to moderate to 5.2 percent in 2021-22 from 6.2 percent in 2020-21. Nevertheless, it will remain well above the mid-point of the MPC’s renewed medium-term target range of 2-6 percent, ruling out the possibility of further rate cuts to support economic activity and sentiment.
Viral Sheth, Finance Controller at Moneyboxx: Given the rising risk of inflation we expect status quo as far as policy rates are concerned in the upcoming monetary policy. It is imperative for the RBI to ensure ample credit flow to the rural economy. Setting up a special window for rural-focused and smaller NBFCs will help immensely. Alternatively, the central bank should consider enhancing or relaxing the exposure limit of banks to non-banking financial companies (NBFCs), particularly smaller ones.
Padmaja Chunduru, Managing Director and CEO, Indian Bank: The MPC will be tracking inflation closely. Given that the economy is not yet opened up fully and the uncertainty around vaccination is still continuing, I think they will still retain the interest rate where it is.
Niranjan Hiranandani, National President of NAREDCO: The central bank is likely to maintain an accommodative stance. The second wave of the COVID-19 pandemic has impacted the economy; there is a need to enhance liquidity in the system, especially for stressed industries. Due measures to ensure banks do not get any more non-performing assets (NPAs) need to be taken up, including moves related to the Insolvency and Bankruptcy Code (IBC).
V Swaminathan, CEO at Andromeda and Apnapaisa: Inflation is a key concern ahead of the upcoming monetary policy review. With petrol prices touching Rs 100 per litre, the common man has been affected by this. I expect the RBI to announce more steps to give our COVID-19-battered economy some room for much-needed growth.
Key rates and numbers:
Repo rate (lending rate) is likely to continue at 4 percent and reverse repo rate (RBI’s borrowing rate) at 3.35 percent.
Centre has retained inflation target at 4 percent with the lower and the upper tolerance band of 2 percent and 6 percent, respectively, for the period April 2021-March 2026.
Retail inflation (based on CPI), slipped to a three-month low of 4.29 percent in April. Notably, the RBI mainly factors in the CPI while arriving at its monetary policy.
The RBI MPC’s schedule for 2021-2022 is as follows:
April 5 to 7, 2021
June 2 to 4, 2021
August 4 to 6, 2021
October 6 to 8, 2021
December 6 to 8, 2021
February 7 to 9, 2022
(With inputs from PTI)