MPC may change stance to neutral, change in reverse repo rate likely

7 Feb 2022 , 11:20 AM

“Amidst global inflation pressures, tightening monetary policies by global central banks, high oil prices, domestic inflation, and sharp rise in domestic yields, the MPC will have a tight rope-walk as they discuss the monetary policy stance and interest rates in the coming week. Over the last two years, the MPC has prioritised growth and has provided ample liquidity in the wake and aftermath of COVID-19. However, the last few months have seen growth slowly recovering. The liquidity normalisation measures by RBI have resulted in increase in rates across the yield curve.

“Given that the overnight call rate is closer to 4%, we expect the RBI to change the reverse repo rate by up to 25 bps or make repo the operative rate. While a repo rate hike is not expected, it is possible that the MPC might change their stance to neutral from accommodative. Watch out for the narrative and tone of the MPC to get an indication on the expected interest rates in this calendar year.”

The author of this article is Shanti Ekambaram, Group President — Consumer Banking, Kotak Mahindra Bank Limited

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com