Last month, RBI raised the repo rate or short-term lending rate by 40 basis points in an off-cycle monetary policy review to control spiraling inflation.
Almost all pundits and economists had said that the MPC would decide to increase the repo rate given the high inflation in the country. RBI Governor Shaktikanta Das also said expecting a rate hike was a given. In a previous interview, Das said, “We expect the RBI to raise the repo rate by 40 basis points at the June policy meeting. However, we should be open to a rate hike of between 35 and 50 basis points depending on how the MPC wants to reach the pre-pandemic repo rate of 5.15% or around that mark by the end of August policy. The RBI is likely to raise the CRR in one of the upcoming policies, but will depend on how it views sustainable liquidity over the coming months.
In an off-cycle monetary policy review, the RBI’s MPC last month raised the repo rate by 40 basis points to contain inflation. During the April policy review, the Committee maintained the status quo on the policy rate to maintain it at 4%.
Apart from this, the experts also said that the central bank will probably increase the cash reserve ratio (CRR) in one of the upcoming policies, but will depend on how it views sustainable liquidity in the coming months.
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The political position of the MPC will be the key to watch, as the future political actions of the RBI will depend on it. In the off-cycle policy review last month, the MPC maintained its “dovish” stance on monetary policy.
Rumki Majumdar, Economist at Deloitte, said: “Forward guidance and communication on the monetary policy stance – despite the increase in policy rates, the monetary policy stance has remained accommodative. Given the capital outflows India has witnessed of late, managing liquidity conditions will be critical for healthy credit growth and business and consumer confidence.
Another area of interest will be the Reserve Bank of India’s commentary on inflation. Retail price inflation in April stood at 7.79%, its highest level in eight years, forcing the RBI to raise interest rates as part of the off-cycle monetary policy last month.
At the April MPC meeting, the RBI had revised its retail inflation forecast upwards to 5.7% for the current financial year 2022-23, from 4.5% previously projected.
Asutosh Mishra, Head of Research, Institutional Equities, Ashika Group, said: “In addition to the rate action, we will be closely watching RBI’s inflation forecast as well as any changes in GDP growth estimates. It will also be interesting to know RBI’s future directions on managing growth inflation dynamics.
Apart from these, other key announcements related to loans, cryptocurrencies, liquidity, etc., if any, will also be monitored.
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