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The Indian economy is picking up momentum despite an increase in global threats, albeit the recovery is uneven and plodding through soft patches.
Experts predict that the Reserve Bank will keep interest rates unchanged for the eighth time in a row in its upcoming bi-monthly monetary policy review later this week, despite rising global commodity prices and the need to keep inflation under control at home.
In May 2020, the Reserve Bank decreased the repo rate by 40 basis points to 4% in order to boost demand in the COVID-affected economy. Since then, the RBI has remained silent on interest rate policy.
The six-member Monetary Policy Committee (MPC), chaired by the RBI Governor, will meet for three days beginning October 6. Governor Shaktikanta Das will announce the verdict reached at the meeting on October 8.
In the forthcoming policy review, the RBI is expected to keep rates on hold and maintain its accommodative approach, according to a Morgan Stanley recent study.
“In the current fiscal year, we expect headline CPI to remain range bound around 5%, even as core inflation stays sticky and pressures from increasing global commodity prices emerge. The RBI’s tone and recommendations on the expected path of policy normalisation will be closely monitored. We believe the risks of a rate hike (base case in 1Q22) are tilted toward deferral, as growth concerns are expected to outweigh inflation expectations “It was stated.
The policy rate was last changed on May 22, 2020, in an off-policy cycle to boost demand by reducing interest rates to a historic low.
The national government has directed the RBI to guarantee that retail inflation, as measured by the Consumer Price Index, remains at 4% with a 2% range on either side.
In August, the Reserve Bank held the benchmark interest rate steady, citing inflationary worries in its post-monetary policy review.
The RBI forecasts CPI inflation of 5.7 percent in 2021-22, with risks generally balanced, with 5.9% in the second quarter, 5.3% in the third quarter, and 5.8% in the fourth quarter. Inflation is expected to be 5.1% in Q1 2022-23.
In August, the CPI inflation rate was 5.3%. The September inflation report is set to be revealed on October 12.