The apex institution of the Indian economy, the Reserve Bank of India is likely to keep the interest rates unchanged in the upcoming bilateral monetary policy. The decision would be taken keeping in mind the weak state of the Indian economy and the hike in inflation in recent weeks.
According to RBI governor Shaktikanta Das’ statement, although further monetary policy action was possible, it was important to keep “our arsenal dry and use it judiciously.”
The Monetary Policy Committee (MPC), constituting sox members which is headed by the RBI governor Sukanta Das will meet for three days from September 29th. After their decision in those three days, they would MPC would announce their report on the 1st of October.
In the last MPC committee meeting, which was held in August, the decision to keep RBI policies unchanged was taken up. This was done to curb inflation in the country. In recent times, inflation has hiked up by a six percent mark. The RBI had recognized the condition of the Indian economy and had said that the economy is in an extremely weak condition following the pandemic. RBI in the wake of the pandemic has also cut policy rates by 115 basis points since February.
According to a report by India times, they had published comments of industry body Confederation of India Industry, where they said, “The RBI should maintain its accommodative stance while avoiding a rate cut for now given the stickiness in CPI inflation. While supporting growth is critical, the RBI could wait till there is some visible moderation in inflation.”
Indian GDP was estimated to dip by a huge margin of 23.9 percent in the first quarter, which is also a cause for concern. The RBI has taken several steps to revive the falling economy of the country.
The committee had also cut repo rates in two instances previously. First, it was taken from 5.15 percent to 4.40 percent on March 27 and then again from 4.40 percent to 4 percent on May 22.
In August, the retail inflation saw a slight dip as it went down to 6.69 percent from 6.71 percent in July. The Indian Government has asked the Reserve Bank of India to keep inflation at 4 percent (+/- 2 percent).
According to Union Bank MD and CEO Rajkiran Rai G, the committee would continue to maintain the status quo, as published in Indiatimes. He also said, “With so much of high inflation, I don’t think they will cut rate this time.” He feels that the committee would get a chance to perform a rate cut which will happen in February. He added, “The food inflation is likely to ease in December and post that due to the good crops and, so, the opportunity may come around February for a rate cut.”
IRCA expects the economy to shrink further in the coming months as they predict the GDP to continue to shrink in Q2 FY21 but by a narrower 11-13 percent. The situation is also expected to be less fatal in the second half of the year. Also, according to a report by Bussinessline, government expenditure which is a key driver of economic activity in Q1 reported a volatile trend in July; the Central Government’s revenue expenditure growth stood at a substantial 18.6 percent in that month, while its capital expenditure contracted by 47.1 percent.
According to the Reserve Bank of India Act of 1934, the MPC is set to meet four times a year. However, the September 29th to October 1st meeting would be the 25th meeting that is to be held by the committee.