The Reserve Bank Of India (RBI) has maintained a status quo on policy rates and left interest rates unchanged in its last bi-monthly policy of FY21.
The RBI, however, has maintained an accommodative stance, implying that it may go for more rate cuts in future.
Aditi Nayar, Principal Economist, ICRA, in an interview with Money9, said she feels the rate cycle has ended.
“Looking at how growth and inflation are expected to evolve in the rest of the year, we believe the rate cut cycle has ended. At the same time, we don’t expect rates to be changed upward either for the rest of 2021. So we are now in an extended pause,” she said.
On liquidity management by the RBI, Nayar said the liquidity surplus will be reduced very gradually and in a very calibrated manner by the RBI.
“Change in stance from accommodative to neutral may be expected in June or July 2021. What the status quo policy largely implies is that interest rates both on the borrowing and the lending side may remain fairly flattish over the next few months,” she said.
In a major structural reform, the RBI announced that it will soon allow retail investors open Gilt or G-Sec accounts with the central bank.
Nayar believes the move may lead to some pickup in retail participation, although not immediately.
On inflation, the RBI expects retail inflation to dip further in January from 4.5% in December but then pick up in February and March.
ICRA’s estimate on CPI inflation and on growth are on the same lines as RBI.
Watch the video for the full interview:
