In an effort to include inflation and spurred demand, the Bank of India’s reserve (RBI) is likely to maintain the status of quo in interest rates and maintain an accommodative attitude in the revenuous review of the bi-monthly monetary policy, in accordance with experts.
But traders and analysts see the instructions that the central bank seeks to drain the liquidity record of the banking system, because it increasingly shifts forex intervention to the advanced market.
Earlier this month, the Governor of Bank Apex Shaktikanta DAS said, “When the market settled on regular timings and the operation of normalized functions and liquidity, the RBI will also carry out fine adjustment operations from time to time needed to manage unexpectedly and one liquidity flows so that conditions Liquid in the system evolved in a balanced way and distributed evenly. “
In the last MPC review in August, the central bank has kept key interest rates unchanged for seventh consecutive time. It holds the repo level, the main loan rate is stable at 4 percent and the level of repos is reversed, the loan rate, is 3.35 percent.
The last RBI slashed the repo level on May 2020 to a low of 4 percent to support the economy hit Covid-19. This will be the eighth time RBI maintains his attitude if decided to keep the tariff unchanged.
The Monetary Policy Committee of six members (MPC) is expected to meet for three days starting October 6 Governor of RBI Shaktikanta Das will announce a decision taken at the meeting on October 8.
Speech experts
PATHAK PANKAJ, Fund Manager in Quantum Mutual Fund, believes that the RBI will maintain the status quo at the policy level but maybe a little changes advanced guidance to prepare a reverse repo interest rate increase by the December policy.
“Given the core liquidity surplus survive close to Rs. 12 trillion, the RBI can provide a road map for liquidity management. However, we do not expect a measure of direct absorption of direct liquidity at this point because it can improve speculative market actions. RBI can limit more liquidity infusion Continue and rely on liquidity neutral instruments to intervene in the bond market and foreign exchange, “he said.
Pathak added that the guidelines on liquidity would be the main driver for short tenor bonds, while longer maturity bonds will depend on the quantum of GSAP (purchase of RBI bonds) in the second half of fiscal. “Given lower government loans in October 2021 to 2022 March; we must expect some reduction in the GSAP program in Q3 FY22.”
Suman Chowdhury, Chief Analytical Officer, Acuité Ratings and Researched Africhered Pathak The second view of Pathak about maintaining the policy rate added that the central bank can take several steps to recalibrate the excess liquidity in the monetary system during the next one or two quarters.
“While the high frequency indicator for August-Sep’21 revealed that economic activities reached the pre-pandemic level and the risk of other waves from Covid gradually in the decline, the momentum of recovery was still uneven and did not deride well. In all economic sectors,” he said .
According to Chowdhury, a combination of the increase in global commodity prices, covid related disorders, vaccination progress, and support for economic revival policies have produced the acceleration of inflation in most markets developed and developed.
However, RBI believes in the increase in inflation as a ‘transitor’. In August, the central bank has increased the estimated retail inflation for the financial year 2021-22 to 5.7 percent from 5.1 percent projected previously while maintaining the target of GDP growth for the financial year of 9.5 percent.
The government, in March, has asked the RBI to maintain retail inflation at 4 percent with a 2 percent margin on both sides for a period of five years ending 2026.
“More and more, central banks such as the Federal Reserve in the US have taken a moderate surplus system in a gradual way through tapering aggressive bond purchasing programs instead of starting a rate hike. We believe that the RBI will also adopt a similar approach for two The next quarter to optimize the position of systemic liquidity before considering the interest rate increase, “Chowdhury added that he expected the RBI to start normalizing the policy corridor of the reverse repo of 2021 the value of the increase which would be followed by the final increase in the repo benchmark rate in Q1FY23.
According to Rahul Bajoria, Head of Indian economist at Barclays, while inflation was surprised by the downside, it was not enough to override the possibility of nails in the future. “We hope the RBI reduces the estimated inflation that is close, even because it remains alert to the risk of developing prices over the medium term , “he said.
While Bajoria acknowledged the increase in liquidity but said it did not mean that the RBI was “in a hurry to flow liquidity.”
“We think the policy makers will choose to rely on natural drainers such as increasing demand and currency outflows. Liquidity neutral tools such as the touch of operation are likely to be preferred, even when the central bank continues to send results from the bond issuance program,” he said.
While Covid-19 waves remain controlled and drive vaccination has obtained a critical mass in this country, the RBI is expected to remain vigilant on the possibility of a risk of decline due to third covid waves. Former Deputy Governor of Apex Bank R Gandhi reaffirmed the RBI low interest rate regime which is expected to continue to support economic activities.
“In my assessment, normalization or tightening monetary policy in India are a few quarters of gone. Obviously, not at the current fiscal. The economy revives but we have not reached the Pre-Covid Absolut 2019-20 level,” Gandhi said at an event organized by the room Trade and industrial bengal in September. “The RBI will conduct (tightening monetary policy) when the economy will grow sustainably,” he said.
