RBI monetary policy: Reverse repo rate may see a shift, FY22 GDP growth outlook likely to witness a downward revision

10 Feb 2022 , 08:15 AM

All eyes are now set on the Reserve Bank of India (RBI) which is set to announce its sixth and last bi-monthly monetary policy for FY22 on Thursday. Markets sentiments will be influenced by RBI’s policy stance, inflation and economic outlook, governor Shaktikanta Das’ speech and other new initiatives in policies. Currently, RBI’s policy repo rate under the liquidity adjustment facility (LAF) is unchanged at 4%. While the reverse repo rate under the LAF remains unchanged at 3.35% and the marginal standing facility (MSF) rate and the Bank Rate at 4.25%.

CARE Ratings in its monetary policy expectation said, “We expect the RBI to retain its accommodative policy stance as well as keeping interest rates unchanged. Support to ensure sustainable growth would continue to be the focus. Alongside this, it would go on with trimming the liquidity surplus in the system by using its primary tool of variable reverse rate auctions.”

CareEdge Expectations from RBIs Monetary Policy are:

With economic growth momentum softening and being uneven amid pandemic disruptions and uncertainties, the RBI is expected to maintain its growth focus and continue with the accommodative monetary policy stance and keep interest rates at record lows (repo rate at 4% and reverse repo at 3.35%).

With inflationary pressures firming, the RBI could signal a change in policy stance. Even though CARE does not expect a hike in repo rate till June’22, the reverse repo rate corridor (over the repo rate) is seen to be narrowed from the current 65 bps in a graded manner from April’22.

It would continue paring down liquidity in the system (through variable-rate reverse repo auctions and sale of GSecs) while also making adequate available to support the uptick in credit offtake.  CARE said, We however do not anticipate any new liquidity measures in this policy.”

The RBI’s GDP growth outlook for FY22 could see a downward revision (from 9.5%).

In terms of bond yield management, it would continue with the policy of need-based secondary market purchases of government securities.