The Reserve Bank of India is set to announce the decision of its bi-monthly monetary policy on December 8. India’s central bank will likely to keep interest rates at record lows amid the emergence of new Covid-19 variant Omicron across the world. RBI monetary policy committee (MPC) will keep the key lending rate or the repo rate unchanged at 4 per cent for the ninth straight meeting, said analysts.
“There has been a lot of developments over the last month, which is of significance for the MPC. The impact of the new variant is yet uncertain and could undo the positive developments cited by many such as the increase in GST collections, etc. Further, the Federal Reserve of the USA has also indicated that the inflation in the USA is there to stay and is not transitionary. Federal Reserve could start increasing the interest rates in response, which could force RBI also to increase interest rates but the supply side disruption in the last few months due to shortage of supply of coal, chips, etc. would force RBI to hold the rates until next meet by which time there would be clarity on the impact of the new variant, US Federal Reserve action and the supply side recovery in India. Overall the MPC is expected to tread cautiously in this scenario,” said Divakar Vijayasarathy, founder and managing partner, DVS Advisors LLP.
RBI MPC Today: What Economists Say
All 50 economists polled by Reuters expected the MPC to hold rates at its December 8 meeting.“We were previously expecting the RBI to hike the reverse repo rate 15-20 bps in December, but given the uncertainty emerging from the new COVID-19 variant, we now expect status quo,” Morgan Stanley economists wrote.
According to the economists, that the central bank will hike its reverse repo rate early next year and increase its repo rate the following quarter. “The central bank is likely to wait to understand the risks posed by the new variant. If the growth impact from the new COVID-19 variant is muted, then we expect the policy normalisation to start from February with an increase in the reverse repo rate.”
“There were growing expectations that in the December MPC meeting, RBI would hike the reverse repo rate to narrow the corridor between repo and reverse repo rate. However, the new COVID variant Omicron has again pushed the global and Indian economy in a state of uncertainty and nervousness. There is also added uncertainty of any knee-jerk reaction of Indian and global financial markets to Fed’s monetary policy indication/action. In such a scenario, RBI in its upcoming meeting is likely to keep the rates on hold,” said Rajani Sinha, chief economist and national director, Research, Knight Frank India.
Indian economy remained on track to post the fastest growth among major economies this year as its GDP expanded by 8.4 per cent in the July-September quarter to cross pre-pandemic levels. The near term Indian CPI is likely to remain within the MPC target band of 4 to 6 per cent
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