RBI's interest rate-setting panel keen on inflation

Mumbai: Reserve Bank of India's (RBI) rate-setting panel started its three-day deliberations on the next bi-monthly monetary policy on Wednesday amid rising global commodity prices and the need to contain inflation at home.

The decision of the six-member Monetary Policy Committee (MPC) would be announced on Friday by RBI Governor Shaktikanta Das on Friday. Experts are of the view that the central bank will maintain the status quo on policy rates for the eighth time in a row. The policy repo rate or the short-term lending rate is currently at 4 per cent, and the reverse repo rate is 3.35 per cent.

Ranen Banerjee, leader (Public Finance and Economics) at PwC India opined that the latest statements by the US Fed Chair on possible actions if inflation does not wear off by H1 of 2022 is a clear commencement of chatter around rate action after the clarity on taper timing. "This will have a bearing on the stance of the MPC as it will also be worried on the inflation front given the oil, natural gas and coal prices showing no signs of abetting and rather continuing to have an upward bias," he said.

However, it is very unlikely that there will be any rate action given the inflation is within the tolerance band and the 10-year yields keep hovering slightly above 6 per cent, Banerjee said. M Govinda Rao, Chief Economic Advisor of Brickwork Ratings, said with the consumer price inflation easing from 5.59 per cent in July to 5.3 per cent in August, improved supply situation on the back of the pandemic-led restrictions being relaxed, and capacity utilisation still in the recovery mode, there is no immediate pressure on the MPC to either alter interest rates or change the accommodative stance.

When asked for his opinion, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and PropTiger.com, said even though most growth indicators currently show positive signals, the RBI is expected to maintain a status quo on key policy rates to maintain financial stability and boost demand during the ongoing festive season.

He also said that home loans are currently available at interest as low as 6.50 per cent annual interest. "The continuation of this historically low interest rate regime for the entire festive season is a must for India's real estate sector, the second biggest employment generating sector in India, to regain its strength," Agarwal added. The RBI has projected the CPI inflation at 5.7 per cent during 2021-22 -- 5.9 per cent in the second quarter, 5.3 per cent in third, and 5.8 per cent in the fourth quarter of the fiscal, with risks broadly balanced.