Kolkata, Feb 8: Status quo in the repo rate on Thursday’s MPC meeting was no surprise as one does not expect the repo rate to be lowered quickly, say for another six months, stated Siddhartha Sanyal, Chief Economist and Head Research, Bandhan Bank on RBI monetary policy.
” Legroom for the repo rate from the current 6.50 per cent is limited. Also, a prudent central bank will likely refrain from a rate cut around a major political event like the general election. Most of the major global central banks also appear to be cautious to start easing policy rates, ” he said.
” If the RBI’s CPI forecasts come true, clarity about headline CPI inflation softening to a 4 per cent-handle should emerge by Q2 of 2024-25 ? that should offer the MPC the flexibility to cut the repo rate and maintain a real interest rate that is better aligned with their long term policy objective. Also, given that the US Fed seems to be inclined to cut their policy rates only in May 2024, if not later, the RBI will likely prefer rather cautious approach in terms of starting the rate easing cycle; after all, the Indian rate cutting cycle might be quite a shallow one more ” Sanyal added.
” One feels that the case for a change in policy stance to ‘neutral’ from the current ‘withdrawal of accommodation’ is stronger now. While that did not take place in February, the expectations of a change in the policy stance will likely be strong in the coming meetings, ” he said.
” Amid widespread concerns about liquidity tightness, the RBI’s communication suggested that stepping up in government spending should help infusing liquidity in the banking system. We continue to believe that in case of a need for the banking system, especially towards the end of the financial year, the RBI may provide liquidity support in a nuanced fashion. A preferred option for RBI can be to extend the tenor of variable rate repo (VRR) auctions ? say, up to 28 days. It will mean flexible and measured infusion of liquidity, offering banks more durable liquidity and, thereby, better control over their liquidity management efforts, ” Sanyal added.
” Interestingly, the RBI came out with further upward revision in growth projections for the upcoming financial year. If the economy indeed grows at 7 per cent during 2024-25, India looks set to emerge as the fastest growing large economy by a distance. Such strong uptick in growth along with broadly anchored inflation will provide greater policy cushion for the MPC, ” he said. (UNI)
Follow our WhatsApp channel
