Mumbai: India’s central bank is unlikely to change the benchmark lending rate in its October bi-monthly policy review, which will be analysed threadbare by investors for Mint Road’s first commentary on inflation and growth estimates since the early summer pandemic outbreak.
According to an ET survey conducted among 20 market participants, only Bank of America expects a rate cut by 15 basis points. The rest expect a status quo on both rates and policy stance, now set at ‘accommodative’.
The three-day policy review is scheduled September 29-October 1. The central bank has, so far this year, slashed the reverse repo by 155 basis points to 3.35 per cent and repo by 115 bps to 4 per cent.
“The central bank may chart out a path for future growth revival as it is currently constrained by inflation,” said Abheek Barua, chief economist at HDFC Bank. “It would retain the window for future interest rate cuts citing that inflation is only transitory and will cool off with easing supply-side disruptions. In an extreme case, the RBI may announce a cap on interest rate increase for a specific period, in line with the US Federal Reserve.”
The Federal Reserve does not expect to lift its fund rates until 2023.
Globally, central banks are boosting liquidity to help combat the effects of the deadly virus.
Consumer prices in India rose 6.69 per cent in August, compared with 6.73 per cent in July. Supply disruptions are primarily blamed for such prints that extend beyond the central bank tramlines.
India’s first quarter gross domestic product shrank a record 23.9 per cent.
“In this policy, the markets will watch for views of three new non-RBI members on the current economic environment,” said Anubhuti Sahay, India economist at Standard Chartered. “The Monetary Policy Committee will project both inflation and growth for the current financial year, which have not been provided since the pandemic outbreak. (Investors will look for) measures to support the bond market.”
The six-member committee will include three new members for the first time.
The central bank might reiterate its accommodative stance, which increases the likelihood of lower borrowing rates in the future if the pace of price increases were to moderate.
“There are some signs of improvement that activity is starting to return to normal as lockdowns are eased,” said Rahul Bajoria, chief India economist at Barclays. “With the appointment of three new external members expected at this week’s meeting, the Monetary Policy Committee will likely get a makeover.”
Source:-economictimes.indiatimes.com