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economy | IST

RBI MPC Meet: Will Reserve Bank continue to be accommodative?

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While inflation, which had briefly run above RBI's target, has subsided, we are now sitting on surplus liquidity. Currently, it is at an unprecedented 11-12 lakh crore, which might have some unwanted repercussions. But the biggest question weighing on RBI's mind as it decides policy is, are the factors posing risks to growth abated?

The results of the October monetary policy meeting, led by Reserve Bank Governor Shaktikanta Das, are due Friday. And there is some good news and not-so-good news that policymakers at Mint Street will have to contend with in this review.
While inflation, which had briefly run above RBI's target, has subsided, we are now sitting on surplus liquidity. Currently, it is at an unprecedented 11-12 lakh crore, which might have some unwanted repercussions. But the biggest question weighing on RBI's mind as it decides policy is, are the factors posing risks to growth abated?
On the one side, there are signs that the economy has stabilised leading indicators in September, based on a small set, which seems to suggest that we are past the pre-COVID levels. But on the other side, many risks have arisen in the system.
All eyes will be on the potential liquidity normalisation path and the reverse repo rate hikes, but economists told CNBC-TV18 any sharp moves are unlikely.
In a CNBC-TV18 poll of economists, 90 percent said the central bank will continue with a status quo on reverse repo in this policy. But in the coming December 7 policy meet, 7 out of 10 economists expect RBI to start hiking the reverse repo rate.


The next step in normalisation is repo rate hikes. The majority of economists expect a repo rate hike only in the first quarter of the next fiscal. Clearly, in the October policy, economists do not expect RBI to alter its accommodative policy stance. In fact, they believe a signal is just as unlikely as a rate hike.
The poll also showed, by the time we end this fiscal, there could be a 15-50 basis points hike in the reverse repo rate.
Economists have also projected the growth forecast for FY22 at 9.5 percent. On the inflation front, 60 percent of the polled economists believe the current forecast could be lowered to 5-5.6 percent for the complete year.
The economists -- 60 percent of them -- also believe RBI will continue its government securities acquisition programme to comfort the bond market, given the government's elevated borrowing for this year. While 40 percent of them believe it may switch to G-SAPs completely.