RBI is likely to keep rates unchanged

Mumbai: The Reserve Bank of India (RBI) is likely to maintain status on key policy rate when it unveils its bimonthly policy review on Friday (February 05).

Not to mention that the MPC has kept the rate unchanged at a record low of 4 per cent, and the reverse repo rate is 3.35 per cent for last three meetings in a row. The RBI's Monetary Policy Committee (MPC), which began its meeting on Wednesday, is likely to maintain the interest rates and continue with an accommodative policy stance to push the growth.

Moreover, the MPC is expected to with some clarity or guidance on the pace of normalisation of the operative target rate towards pre pandemic levels. "While we expect the Repo rate to be maintained at 4 per cent through rest of 2021, the reverse repo rate hike of 15-35 bps is likely in 2HCY21. We expect the RBI will continue to strive towards bringing the operative rate towards Repo rate through next few quarters largely through tools like variable overnight and term reverse repos", says Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank.

Meanwhile, the Budget has revised the fiscal deficit to 9.5 per cent for FY21 and 6.8 per cent for FY22, indicating that the government's borrowings would be high and in such a scenario it would be difficult for the RBI to maintain low interest rates - to encourage banks to lend more.

According to a report by Emkay, the growth-centric budget has implied elevated market borrowings, further spooking the bond market which was already reeling under pressure since January on fears of an apparent liquidity withdrawal. The unintended financial tightening amid a nascent growth recovery is neither optimal nor desirable at current juncture, it adds.