RBI MPC Meet LIVE: BofA Securities expects RBI to remain accommodative, leave all rates


The Reserve Bank of India’s Governor Shaktikanta Das is set to announce the monetary policy rates for new financial year (2022-23) today. Most analysts are expecting RBI to maintain status quo on interest rates to support growth. However, RBI may change the stance in view of retail inflation piercing its upper tolerance limit, global uncertainties created by the ongoing Russia-Ukraine war, and the urgency to protect and boost growth, feel experts.

The RBI is likely to suggest that inflationary pressures are temporary, that inflation will remain below its 6 per cent upper-bound, and that monetary policy should remain supportive of growth.

The government has mandated the central bank to keep the inflation at 4 per cent (+,- 2 per cent). After the February MPC meeting, the RBI had decided to hold its key lending rates steady at record low levels for the 10th straight meeting to support a durable recovery of the economy from the COVID-19 pandemic.

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RBI may shift away from accommodative stance: Nomura

“There is a reasonable likelihood that the RBI will take its first reluctant step towards policy rate normalisation by changing stance from ‘accommodative’ to ‘neutral’, but we expect it to balance it with dovish guidance,” the global research firm said.

“We expect a policy pivot in June and continue to expect 100bp in cumulative repo rate hikes in 2022.”

Indian economy recovered well after the end of lockdowns, but analysts have predicted risks in view of geopolitical tensions and high commodity prices

Indian economy recovered well after the end of lockdowns, but analysts have predicted risks in view of geopolitical tensions and high commodity prices

RBI to remain accommodative, leave all rates unchanged: BofA Securities

Bank of America Securities India had in a pre-policy note earlier this week said it expects the RBI-MPC to stay on hold on all rates on April 8 and retain its accommodative stance.

The agency expects the RBI to turn neutral in the June review alongside raising the reverse repo rate by 40 bps, normalising the policy corridor and delivering the first repo rate hike of 25 bps in August.

Rising inflation remains a sticky spot for the Monetary Policy Committee (MPC) as the increase in input costs threatens the overall demand scenario and thereby the patchy recovery.

Retail inflation inched up to an eight-month high of 6.1% in February 2022 while wholesale inflation remained elevated at 13.1% in February 2022.

Rising inflation remains a sticky spot for the Monetary Policy Committee (MPC) as the increase in input costs threatens the overall demand scenario and thereby the patchy recovery.

RBI has kept rates at historic low since May 2020

In the last 10 meetings, the MPC left interest rate unchanged and also maintained an accommodative monetary policy stance. The repo rate or the short-term lending rate was last cut on May 22, 2020. Since then, the rate remains at a historic low of 4 per cent.

Since October 2019, the central bank has said it will “continue with the accommodative stance as long as it is necessary to revive growth”.

Since October 2019, the central bank has said it will “continue with the accommodative stance as long as it is necessary to revive growth”.

Wait for hawks may take longer

Even though inflationary pressures are rising amid uneven economic recovery, many analysts have opined that the Reserve Bank of India (RBI) may wait a tad longer before opting for an aggressive hawkish stance.

What Arvind Panagariya wants

While talking to ET Now, the Former VC of Niti Aayog said: “The Reserve Bank of India’s work is cut out here…The right instrument to use right now is the exchange rate. This (Ukraine war) is a shock that happened externally and therefore we need to support our exports and also provide some ability to compete against imports because the immediate impact of these things is going to be on the current account and the way to combat it is through the exchange rate so that we encourage more exports and can provide some cushion against the imports to domestic production through the exchange rate.”

RBI is expected to consider measures such as open-market operations or Operation Twists — selling shorter-dated notes and buying longer-maturity bonds to keep yields down — to support the market amid record debt supply. It employed both tools during the height of the pandemic.

RBI is expected to consider measures such as open-market operations or Operation Twists -- selling shorter-dated notes and buying longer-maturity bonds to keep yields down -- to support the market amid record debt supply. It employed both tools during the height of the pandemic.

RBI is likely to re-evaluate its projection for both GDP growth and CPI inflation in the upcoming policy meeting

Japanese brokerage Nomura in a research report said the RBI is likely to re-evaluate its projection for both GDP growth and CPI inflation in the upcoming policy meeting.However, the RBI is likely to suggest that inflationary pressures are temporary, that inflation will remain below its 6 per cent upper-bound, and that monetary policy should remain supportive of growth.

“Difficult for the RBI to continue maintaining a status quo”

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com & PropTiger.com, opined that given the increase in inflationary pressure due to the war in Ukraine, it will be difficult for the RBI to continue maintaining a status quo on key policy rates in its upcoming monetary policy.

“While this would hurt the recovery process in India post the disruptions caused by the various waves of the coronavirus pandemic, the RBI may not have the flexibility to avoid a rate hike,” he said.

Limited scope to tighten monetary policy: Acuité Ratings & Research

Given the current uncertainties, Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, opined that RBI “has limited scope to tighten monetary policy”.

Amidst the deleterious impact of the war, the RBI will be walking a tightrope on its monetary policy decisions, striving to control inflation within the tolerance band while at the same time supporting nascent growth impulses, he said.

“Going forward, we expect the RBI to restore the width of the LAF corridor to its pre-pandemic levels by hiking the reverse repo rate by 40 bps over Jun-Aug 2022 policy review, followed by a cumulative 50 bps hike in the repo rate in the rest of 2022-23,” Chowdhury said.

MPC is unlikely to sacrifice growth to control imported inflation: ICRA

Aditi Nayar, Chief Economist of ICRA Limited, said in the April 2022 policy review, the MPC is expected to revise up its Consumer Price Index-based inflation forecast, whereas the growth projections for 2022-23 would be pared.

“Nevertheless, the MPC is unlikely to sacrifice growth to control imported inflation. With the upper threshold of the medium-term inflation target range being as high as 6 per cent, the MPC is likely to remain growth supportive for longer than other central banks. Overall, we expect a status quo policy in April 2022,” she said.

RBI may change stance

Though RBI is expected to maintain policy rates as it is to support growth, but it may change stance in view of retail inflation piercing its upper tolerance limit, global uncertainties created by the ongoing Russia-Ukraine war, and the urgency to protect and boost growth, feel experts.

RBI to announce policy for this year today

The Reserve Bank of India’s Governor Shaktikanta Das is set to announce the monetary policy rates for new financial year (2022-23) today. Most analysts are expecting RBI to maintain status quo on interest rates to support growth.



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