'RBI expected to hold rates on uncertainty over new Covid variant'

'RBI expected to hold rates on uncertainty over new Covid variant'
Source: IANS

Mumbai, Dec 5 (IANS) The Reserve Bank of India is expected to retain key lending rates and accommodative stance to support growth during the upcoming monetary policy review schedule next week, said experts.

 

The Monetary Policy Committee meeting of the central bank will be held between December 6-8.

"There were growing expectations that in the December MPC meeting, the RBI would hike the reverse repo rate to narrow the corridor between repo and reverse repo rate. However, the new Covid variant 'Omicron' has again pushed the global and Indian economy in a state of uncertainty and nervousness," said Rajani Sinha, Chief Economist and National Director, Research, at Knight Frank India.

"There is also added uncertainty of any knee-jerk reaction of Indian and global financial markets to (the US) Fed's monetary policy indication/action."

In such a scenario, the RBI, in its upcoming meeting, is likely to keep the rates on hold, Sinha said.

"On the growth front, while most economic indicators have surpassed pre-Covid levels, there is still a lot of slack in the economy. Hence RBI may decide to wait and watch till the next MPC meeting in February 2022," Sinha said.

At present, the Monetary Policy Committee of the central bank has maintained the repo rate, or short-term lending rate, for commercial banks, at 4 per cent. Besides, the reverse repo rate was kept unchanged at 3.35 per cent.

"Given the uncertainty from the new variant, we maintain our call for a reverse repo rate hike in the February RBI MPC meeting rather than in the upcoming December meeting," Kotak Securities said.

"We expect the RBI to continue on its path of normalisation with the reverse repo rate hike in February policy and repo rate hike in mid-FY23.

"Furthermore, base effect, along with relatively lower food prices, have eased India's October retail inflation on a sequential, and year-on-year basis. The Consumer Price Index (CPI) was 4.48 per cent in October from 4.35 per cent in September. Even on YoY basis, October 2021 retail inflation was lower than 7.61 per cent recorded for October 2020.