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      • RBI Monetary Policy October 2021

      RBI Monetary Policy October 2021

      • Posted by admin
      • Categories Blog, Stocks
      • Date October 8, 2021
      • Comments 0 comment

      RBI policy review announcements today

      The Reserve Bank of India’s bi-monthly policy review announcements are scheduled to be made by governor Shaktikanta Das at 10 am today. It is widely expected that the bank will keep its benchmark rates unchanged. The bank is also expected to retain its GDP forecast at 9.5%, besides revising down inflation forecast will fall in food prices.

      The MPC will have to factor in inflation risks arising out of the ongoing global energy crisis and rising fuel prices, which could impede growth.

      Jayant Varma, the sole dissenting voice at the last policy review in August, had voted against the ‘accommodative stance’ adopted by the banking regulator. The market will be watching the policy review for indications on whether the central bank will take action to narrow the gap between main repo and reverse repo rates, in a signal for gradual normalization.

      The Reserve Bank of India’s Monetary Policy Committee is expected to keep a status quo on key policy interest rates and accommodative stance in its upcoming policy review.

       

      The Reserve Bank of India’s Monetary Policy Committee is expected to keep a status quo on key policy interest rates and accommodative stance in its upcoming policy review. The RBI will present its third bi-monthly monetary policy for FY22 on Friday, 8 October 2021. Since March 2020, RBI has reduced repo rates to a record low of 4 percent through two rate cuts of 75 bps in March 2020 and 40 bps in May 2020. Since then, the RBI has refrained from taking any action on interest rates. This policy comes in the backdrop of a gradual improvement in the domestic economic conditions and increased pace of vaccination that is boosting consumer sentiments and confidence, analysts said.

      RBI Governor Shaktikanta Das in the previous MPC meeting decided to keep the repo rate unchanged and continue with the accommodative stance as long as necessary to support growth.

      Rate stance

      The MPC is likely to remain on a pause mode on Friday as it awaits more cues from the growth-inflation front. The general consensus among economists is that the stance will remain ‘accommodative’. However, there may be a change in the forward guidance that indicates gradual normalization. “The MPC may change the forward guidance somewhat to prepare for a reverse repo rate hike by December policy,” said Pankaj Pathak, Fund Manager for Fixed Income at Quantum Mutual Fund.

       

      GROWTH

      The RBI is likely to sound optimistic about the growth recovery. On October 5, rating agency Moody’s hiked India’s sovereign credit rating outlook to stable from negative, citing an improvement in the financial sector and faster-than-expected economic recovery across sectors.

      In the last policy review, the MPC had retained the projection for real GDP growth at 9.5 percent for 2021-22. Real GDP growth for the first quarter of 2022-23 is projected at 17.2 percent.

      This time, the MPC is likely to signal growing confidence about economic recovery and its growth forecast, even as the committee may caution against terms of trade losses due to higher global commodity and oil prices and anticipated the third wave, of the Covid pandemic, said Madhavi Arora, the Lead economist at Emkay Global.

       

      Inflation

      Consumer price based-inflation (CPI) has shown an easing trend in the recent past. CPI for August 2021 came in at 5.30 percent, compared with 5.59 percent in July, as food prices cooled further, especially in the case of vegetable price inflation, data released by the National Statistical Office (NSO) showed on September 13.

      On October 6, Barclays India said it expects CPI inflation to moderate to 4.62 percent on a year-on-year basis in September, on corrections in prices of perishables in the food basket. The MPC is likely to take a benign view on inflation.

       

      Additional liquidity measures

      The central bank could signal the continuation of some of the liquidity support measures, including the special open market operations. “The central bank may want to follow ‘Zor ka jhatka Dheere see making amends to the VRRR amount and tenor (increase) and also announce Operation Twist (OT) in place of outright bond purchases.

      This seems in sync with their ‘orderly evolution of the yield curve narrative. Hence we expect a status quo in rates for now, with guidance towards narrowing the repo and reverse repo corridor going forward,” said Lakshmi Iyer, CIO (Debt) and Head of Products at Kotak Mutual Fund.

       

      Factors that may influence MPC’s decisions

      • The consumer price based-inflation (CPI) for August 2021 came in at 5.3% compared with 5.59% in July, as food prices cooled. Barclays India on Monday said it expects CPI inflation to moderate to 4.62% on a year-on-year basis in September

      •  Core liquidity surplus is persisting close to ₹12 trillion

      •  Moody’s hiked India’s sovereign credit rating outlook to stable from negative. It cited faster-than-expected economic recovery across sectors as the reason behind the move.

      •  Trade losses due to higher global commodity and oil prices

      •  The possibility of a third wave of the covid pandemic

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

      SOURCES- MONEYCONTROL.COM
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