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    RBI monetary policy today on repo rate, policy stance: What to expect

    RBI monetary policy today on repo rate, policy stance: What to expect

    RBI monetary policy today on repo rate, policy stance: What to expect
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    By CNBCTV18.com  IST (Updated)

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    The Reserve Bank of India (RBI) is expected to maintain the status quo on benchmark interest rate in its first monetary policy decision of the fiscal year 2021-22 on Wednesday.

    The Reserve Bank of India (RBI) is expected to maintain the status quo on benchmark interest rate in its first monetary policy decision of the fiscal year 2021-22 on Wednesday. At present, the repo rate or the lending rate at which the central bank lends money to banks stands at 4 percent, while the reverse repo rate, which is the rate at which the central bank borrows from banks or simply the rate at which commercial banks keep their excess money with RBI, stands at 3.35 percent.
    A CNBC-TV18 poll among ten economists shows no changes in these rates amid continued uncertainty over the second wave of coronavirus pandemic and higher inflation levels. In fact, as per the CNBC-TV18 poll wherein, eight out of 10 economists polled said that the MPC will maintain a status quo on repo rates- ie. no cut or hike- for the entire calendar year 2021, but the reverse repo rate may see changes.
    While the current inflation levels are much above the RBI's comfort zone of 2-6 percent, the Indian economy still needs support from lower rates and accommodative policy even if commodity inflation is rising globally as the growth is threatened by the second wave of the COVID-19 pandemic and as states impose curbs and localised lockdowns. The RBI's Monetary Policy Committee (MPC) cut rates by 135 basis points last year in five straight meetings helping to rescue the economy.
    A pause in policy approach is also likely as interest rates have bottomed out and in fact, Kaushik Das, Chief Economist of Deutsche Bank, in a recent interview with CNBC-TV18 said that from here the RBI will focus more on calibrated exit.
    “We have seen this reversal happening and at least for a quarter now it will stay at same level. So I guess interest rates are bottomed and from here Reserve Bank of India (RBI) will focus on more about calibrated exit and what is the right time,” Das told CNBC-TV18.
    His comments came in the backdrop of the Ministry of Finance on March 31 announcing a cut in the small savings schemes by 50 to 110 basis points for the first quarter of the financial year starting April 1, 2021. The schemes included public provident fund (PPF), national savings certificate (NSC) and other small savings schemes like the Sukanya Samriddhi Yojana. However, the cut has been reversed by the government within 12 hours.
    "Elevated fuel prices and core pressures are likely to keep the average retail inflation in FY2022 well above 4 percent, the mid-point of the MPC’s inflation target band. Therefore, we expect an extended pause through 2021, unless a cut in indirect taxes on fuels results in a sharp softening of the inflation trajectory, " said ICRA's Principal Economist Aditi Nayar.
    Yet another expert feels that the accommodative bias will continue with the RBI MPC keeping benchmark rates unchanged.
    "Developments since the February review—sticky inflation and an increase in COVID cases—are likely to influence the policy guidance," said Radhika Rao in an article.
    "Besides mainstream policy, the central bank will seek a smooth borrowing program, with the April policy providing a window to bridge the communication gap with the market participants. The borrowing calendar points to 60 percent of the FY22 issuance being frontloaded, with the tenor mix (lower 10Y papers and higher ultra-long vs 1HFY21) seen as steps to better balance the demand-supply mix at a time when rates are broadly drifting higher," Rao added.
    Another area where the markets will keenly watch the RBI MPC decision is vis-a-vis bond markets. RBI Governor Shaktikanta Das on March 25 had said that the relationship between the central bank and the bond market should be "cooperative" and "not combative", adding that there is "no fight between RBI and market."
    Meanwhile, the equity markets opened higher with the Sensex opening 75.7 points, or 0.15 percent higher at 49,277.09, while the Nifty started at 14,716.45, up 32.95 points, or 0.22 percent. Banking stocks fell ahead of the RBI monetary policy announcement.
    Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
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