RBI likely to keep key rates unchanged
3-day RBI MPC meeting began on Wed, decision today
image for illustrative purpose
Unless inflation comes down on a durable basis, RBI will not look at reducing repo rate. - M Narendra, former CMD, IOB, tells Bizz Buzz
Mumbai: The three-day review meeting of Reserve Bank of India’s Monetary Policy Committee (MPC) commenced on April 3 and MPC will announce its policy decision on Friday. All eyes its decision whether it will continue the stance of withdrawal of accommodation.
Talking to Bizz Buzz, M Narendra, former chairman and managing director, Indian Overseas Bank (IOB), says: “In the current circumstances, it is likely that RBI will continue to have a pause on repo rate while maintaining the stance on withdrawal of accommodation. RBI would like to see the prospectus of normal monsoon, policy perspectives of new government, global uncertainties, food related and oil related volatility in prices, supply of food grains and its output, etc. RBI expected to look at reducing repo rates only in August/October.”
Unless inflation comes below the RBI’s target of four per cent on a durable basis, RBI will not look at reducing repo rate, he said.
The inflation has been hovering near 5.1 per cent, with last reading coming at 5.09 per cent for February. Though it is well within the band of 4-6 per cent, RBI wants it to be closer to four per cent. The main task of the MPC is to keep inflation well under control as it’s answerable to the central government on this.
As RBI has itself said that it is wary of rising inflation, it is very unlikely that it will cut policy rates on Friday. Furthermore, oil prices have been on the rise with Brent touching $89, a six-month high. As India imports 88 per cent of its oil requirements, oil prices have the potential to change the inflation forecast.
Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors, says: “RBI may not be able to cut rates until US blinks, though our monetary policy is not dependent on what FED does. But ultimately, it does affect it as our cut will reduce buying in spot USD INR, and falling differentials will keep premiums lower, both of which scenarios RBI does not want. With sufficient reserves, RBI is well positioned to keep a tab on rupee weakness if it happens.”
So, we don’t expect RBI to cut rates on Friday and change the stance of withdrawal of accommodation, he added.
