Mumbai: The Governor of the Reserve Bank of India, Shaktikanta Das, will announce the policy decision of the monetary policy committee on Friday at 10 am, followed by a press conference at 12 noon. Here are the 5 things to keep in mind.
Qualify action: The MPC is likely to keep official interest rates unchanged despite the persistent rise in inflation and the strong rebound in the recovery. A Mint poll had shown that 10 economists were unanimous in their opinion that the committee will keep the buyback rate at 4% along with the accommodative policy stance. All economists surveyed expect the RBI to remain on standby and watch for the remainder of the fiscal year, contrary to their previous projection of a rate cut before the end of the year. While not expecting a rate cut, these economists expect MPC to remain moderately forward-looking for the remainder of the year. MPC in its October policy had stated that it would continue with the accommodative stance for as long as necessary until the next financial year.
Increase: The latest gross domestic product (GDP) figure showed that the Indian economy experienced a strong recovery in the second quarter from a record 24% drop in the previous quarter. GDP contracted 7.5% in the July-September quarter, less than the central bank’s 8.6% prediction according to the immediate forecast model, under which economic conditions are monitored in real time to make predictions. . Therefore, the market expects the RBI to revise the growth projection for the current fiscal year to around -8.5% from -9.5% previously. However, they expect RBI to take a cautious tone, pointing to uncertainty about demand resilience after the holiday season and downside risks due to rising infection cases.
Inflation: Inflation has surprised to the upside, staying above the upper tolerance level of 6% for seven consecutive months. Supply-side factors such as off-season rains, labor shortages, higher prices for services, higher prices for raw materials, and higher taxes, have contributed to a rebound both in headline inflation as well as underlying inflation Therefore, the market expects the RBI to revise its inflation forecast for the current fiscal year upwards. Nomura expects a revision of more than 1 percentage point (pp) to 5.5-6.9% in the second half of fiscal year 21 (from 4.5 to 5.4%) and a new forecast for the first half of fiscal year 22 of 4.2-4.8% . That being said, vegetable prices have started to decline, likely to lower headline inflation in November and more sharply in December. However, other cost pressures on non-food items such as freight, telecommunications, appliances, etc. they will continue to keep inflation above the 4% target.
Liquidity: All eyes will be on whether the RBI will review its ultralax liquidity policy, as short-term loan rates remain below their benchmark rates. The yield curve has steepened since October’s MPC due to the sharp decline in the yields on T-bills compared to the gradual decline in the 10-year GSec benchmark yield. While RBI is expected to address this dilemma in the next policy, market participants remain divided. Some traders and economists believe that the central bank will announce measures such as Market Stabilization Scheme (MSS) bonds to sterilize this liquidity. This is because they expect excess liquidity to complicate risk pricing for lenders. However, others expect the RBI to continue its liquidity stance as it supports the recovery by pressuring consumers to invest.
MPC voting pattern: It will be interesting to observe the voting pattern of the MPC members. In the latest policy, all members except Jayanth R. Varma voted to continue the accommodative stance for an extended period, or at least into the next financial year, to jumpstart growth in a lasting way while ensuring inflation tails off. find within the goal. Verma had argued that India’s steep yield curve was caused by the drafting of the MPC’s forward-looking guidance. The market will be attentive to the opinions of MPC members on the liquidity position, growth and inflation of the RBI.
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