New Delhi: Amid fears of a 3rd wave of coronavirus pandemic and hardening of retail inflation, the Reserve Bank is likely to maintain status quo on interest rate and watch the creating macroeconomic scenario for some extra time earlier than taking any decisive motion on monetary policy.
The RBI is scheduled to announce its bi-monthly monetary policy assessment on August 6 on the finish of the three-day assembly — August 4-6 — of the Monetary Policy Committee (MPC).
The RBI Governor-headed six-member MPC decides on the important thing policy charges. The panel had left the charges unchanged final time citing considerations on inflation.
“Higher commodity prices and rising global prices post the robust recovery in a few industrial countries will have implications on production costs. We expect the RBI to be in a wait-and-watch mode as it has limited elbow room to manoeuvre monetary policies,” opined Rumki Majumdar, Economist, Deloitte India.
Shriram Transport Finance Managing Director and CEO Umesh Revankar too stated the central financial institution will maintain the repo rate at this time degree regardless of increased inflation.
“The rise in inflation is because of the fuel prices, which will get normalise (in sometime), and the inflation pressure will ease,” Revankar stated.
The Reserve Bank, which primarily elements within the retail inflation whereas arriving at its monetary policy, has been mandated by the federal government to maintain Consumer Price Index (CPI) based mostly inflation at 4 per cent with a margin of two per cent on both facet.
Inflation dominated above the tolerance band throughout June-November 2020 and has once more moved above the higher tolerance threshold in May and June 2021.
The sense is that inflation will persist at these elevated ranges for some months earlier than easing within the third quarter of 2021-22 when the kharif harvest arrives in markets, a current RBI article stated.
Ranen Banerjee, Leader – Economic Advisory Services, PwC India stated that given the status quo stance taken by the US FOMC in addition to different main monetary authorities with the inflation being seen as transitory, “we can expect a similar status quo announcement by the MPC too”.
Growth considerations and weak demand situations owing to influence of second wave of Covid on employment and declining labour pressure participation rate mixed with nervousness of a potential third wave, places constraints on any change in stance by the MPC, he stated.
Further, tranches of GSAPs and OMOs could be anticipated to maintain the yield on G-Secs from rising as there’s a fixed upward stress on it owing to increased borrowing programme of presidency and inflationary pressures, Banerjee stated.
A BofA Global Research report stated: “We expect the RBI MPC to look through the transitory hump in inflation and stick with a unanimous dovish pause in the upcoming August 6 policy. The MPC is likely to revise up its FY22 average CPI inflation forecast slightly from the previous 5.1 per cent and flag potential upside risks.”
As per a analysis report by Radhika Rao, Economist at DBS Group Research, the six-member monetary policy committee will undertake a wait-and-watch mode in August.
“Policy commentary is likely to draw confidence from the turnaround in recent data but express caution over a potential third Covid wave,” it stated.
The CPI-based retail inflation was 6.26 per cent in June and 6.3 per cent within the earlier month. Also Read: Apple dominates world pill market with 12.9 million shipments in Apr-Jun quarter
After the June MPC meet, the Reserve Bank of India had left the benchmark interest rate unchanged at 4 per cent. It was for the sixth time in a row that the MPC maintained status quo on interest rate. Also Read:Â Royal Enfield stories 9% rise in whole gross sales to 44,038 models for July
