RBI policy outcome tomorrow - Views of Industry leaders

7 Apr 2022 , 06:49 PM

The Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, is holding its first meeting in the current financial year today. The meeting which began on April 6, 2022 and the outcome to be announced on April 8.

The RBI’s rate-setting panel started discussions on April 6 to firm up the next bi-monthly monetary policy amid expectations that it might retain the status quo on the interest rate but change its monetary policy stance amid rising Inflation on account of geopolitical developments.

Further, the experts gave their opinion on the MPC policy that it may change the policy stance from ‘accommodative’ to ‘neutral’ and tinker with the reverse-repo rate as part of the liquidity normalisation process.

Mr. Madan Sabnavis, Chief Economist, Bank of Baroda ““We would expect the MPC to review the earlier forecasts of both growth and inflation for FY23. Growth is likely to be revised downwards while inflation would be probably at least 100 bps higher given the evolving conditions. Based on the commentary provided last time there would be a status quo position maintained on both the repo and reverse repo rates. However, with inflation rising prodigiously, in my view there should be active consideration of change in stance from accommodative to neutral. This would signal to the market that there would be possible repo rate hikes in the coming months if inflation remains intransigent at the present level. There would also be some indication given on the currency in general terms of support like the swap operations which will assuage the market.”

Shanti Ekambaram, Group President, Consumer Banking, Kotak Mahindra Bank, said “I do not expect the RBI to change the key rates this time. I am expecting the central bank to provide guidance on liquidity, growth, inflation and the interest rate trajectory going forward.”

“During the last policy review, the RBI adopted an accommodative stance despite higher inflation and signals of growth in the economy. The time, the RBI has a tougher task ahead to lay the monetary policy roadmap mainly because of the Russia-Ukraine crisis and its after effects. Crude oil price has been crossing multi-year highs and thus building on inflationary pressures on the domestic economy. Balancing growth amid geopolitical risks will thus be a challenge for the monetary policy committee,” Shanti Ekambaram added.

Churchil Bhatt, EVP Debt Fund Manager, Kotak Mahindra Life Insurance Company Limited, “Russia Ukraine situation has materially altered the global inflation landscape. In the upcoming policy meeting, MPC may have to decisively tilt its stance in favor of durably lower inflation. To begin with, it may opt to calibrate the quantum and pace of the inflation response so as to least disturb the post-Covid growth impulse. RBI may therefore begin to unwind residual pandemic-era monetary accommodation, thereby embarking on a path of gradual policy normalization. Bond markets are also looking for guidance on RBI’s medium term plan around surplus liquidity and the likely extent of Central Bank support to the ‘orderly evolution of the yield curve’. The MPC has deservingly earned its inflation credibility over past few years and the same needs to be reinforced with a timely and proportionate response to recent inflationary challenges.”

Mr. YS Chakravarti, MD & CEO, Shriram City said, “Considering domestic growth is still in the early stages, the Committee is likely to keep key policy rates unchanged in the upcoming monetary policy meeting. Even though the RBI is reiterating its commitment to supporting growth and easy liquidity, some revisions to inflation and growth forecasts can be expected. The overall growth rate has faced setbacks due to high commodity and input prices and chip shortages. Rising inflation, although transitory and imported, will weigh on the growth in the coming months.”

“The rising input prices and increasing crude and global commodity prices do not hint toward a smooth path and will likely delay spending and hit business and consumer sentiment. RBI needs to continue to support small businesses and MSMEs, which are just starting to emerge from the pandemic-led slowdown. Demand for two-wheeler and retail or personal loans continues to outpace corporate demand, despite being below their pre-pandemic levels, and low-interest rates will help this trend sustain,” Chakravarti added.

Pankaj Pathak – Fund Manager – Fixed Income, Quantum AMC, The RBI is likely to keep the policy rates unchanged and maintain its ‘Accommodative’ stance. The RBI has in past assured the markets that any change in monetary policy direction will be telegraphed in advance. We believe, this is a moment to guide the market for potential rate hikes. The RBI may change the forward guidance to indicate potential rate hikes going forward due to rising inflation pressures. There is also a thin possibility of change in monetary policy stance to ‘Neutral’.” 

“The RBI will have to revise its inflation forecast for FY23 higher due to rising commodity prices and increase in domestic fuel prices. In the last policy they estimated inflation to average at 4.5% in FY23. This may get hiked to 5.0%-5.5% band. The market is positioned for a status quo with slight change in forward guidance. Any change in policy stance or hawkish commentary will push yields higher,” he added.

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company- “The RBI MPC meets at a time when outbreak of war has seen a spike in most commodities pack. Oil is on a boil, gold continues to sizzle, inflation is way too nimble. The growth — inflation debate is likely to hog center stage yet again in the upcoming policy meet. While inflation guidance could see upward revision, we may not see any abrupt rise in benchmark rate. The way to normalization which started off with liquidity, could next move on to narrowing of repo/ reverse repo corridor and/or change in stance from accommodative to neutral. Repo rate hikes could wait for now.”