RBI to release monetary policy today, likely to maintain status quo on key rates; here's what to expect
In the last policy review in October, the RBI had kept the key lending rates unchanged for eight consecutive times
The Reserve Bank of India (RBI) is expected to maintain a status quo on key rates in its bi-monthly policy review to be announced today as Omicron, a new strain of Coronavirus, adds to the economic uncertainties.
The RBI monetary policy committee (MPC) is also likely to keep the key lending rate unchanged at four percent.
— ReserveBankOfIndia (@RBI) December 7, 2021
According to a News18 report, Divakar Vijayasarathy, founder and managing partner, DVS Advisors LLP said, “There has been a lot of developments over the last month, which is of significance for the MPC. The impact of the new variant is yet uncertain and could undo the positive developments cited by many such as the increase in GST collections, etc."
Further, the Federal Reserve of the USA has also indicated that the inflation in the USA is there to stay and is not transitionary. Federal Reserve could start increasing the interest rates in response, which could force RBI also to increase interest rates but the supply side disruption in the last few months due to shortage of supply of coal, chips, etc. would force RBI to hold the rates until next meet by which time there would be clarity on the impact of the new variant, US Federal Reserve action and the supply side recovery in India. Overall the MPC is expected to tread cautiously in this scenario."
In the last policy review in October, the RBI had kept the key lending rates unchanged for eight consecutive times. The repo rate, at which the RBI lends short-term funds to banks, was kept unchanged at four percent. The reverse repo rate, at which the RBI borrows from banks, was kept unchanged at 3.35 percent. The Marginal Standing Facility (MSF) rate was also kept unchanged at 4.25 percent.
After the Monetary Policy Committee meeting on 8 October, RBI Governor Shaktikanta Das had announced that the central bank would maintain an 'accommodative' stance on policy rates and would ensure that inflation remains within the target range. An accommodative stance refers to the willingness to either cut rates or maintain the status quo.
However, during this period the Indian economy has been on a roller coaster. During April-June 2020 quarter, a period when the RBI last changed policy rates, India's GDP slumped by 24.4 percent.
The economy posted a growth of 20.1 percent during April-June 2021 quarter. The GDP posted a growth of 8.4 percent in July-September 2021 quarter as against a contraction of 7.4 percent in the year-ago period.
There has been a wide fluctuation in inflation also. However, the RBI has maintained a 'wait and watch" approach as these fluctuations have been guided by factors largely beyond its control.
COVID-19 new strain Omicron, first identified by South African scientists, is seen as the next big potential source of uncertainties for India's economy. The World Health Organisation (WHO) has officially named the new variant B.1.1.529.
As per the WHO, the first known confirmed case of the new variant was from a sample collected on 9 November this year. Omicron cases have been spreading fast in India. More than 20 cases have been reported in the last week.
With input from ANI
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