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Expect reverse repo rate hike in February 2022 MPC, see calibrated policy normalisation unless Omicron plays spoilsport: Analysts
Even as the Reserve Bank of India (RBI) kept key policy rates unchanged on Wednesday, analyst see the Central Bank hiking the reverse repo rate from February 2022. The hike is seen at 20-25 bps. The reverse repo rate – rate at which RBI borrows money from commercial banks – stands at 3.35 per cent
Even as the Reserve Bank of India (RBI) kept key policy rates unchanged on Wednesday, analysts see the Central Bank hiking the reverse repo rate from February 2022. The hike is seen at 20-25 bps. The reverse repo rate – rate at which RBI borrows money from commercial banks – stands at 3.35 per cent.
The policy normalisation is expected in a calibrated manner given that the new Coronavirus variant Omicron does not pose any significant risks to the overall economy.
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“We expect the RBI to continue normalise its policy in a calibrated manner in the coming months, by hiking the reverse repo rate in February 2022 to reduce the gap with the repo rate to 25 basis points, followed by 25 bps hike in the repo rate in March 2022, Dharmakirti Joshi, Chief Economist at CRISIL Ltd said. The repo rate has been retained at 4 per cent by the Monetary Policy Committee (MPC) which met on Monday to decide on the policy rates. The announcements were made by Governor Shatikanta Das, today.
Meanwhile, Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities expects a reverse repo hike of around 20 bps in the February policy along with tad greater aggressive liquidity withdrawal measures provided the Omicron variant remains benign.
Another analyst Churchil Bhatt said that he expected the MPC to start hiking reverse repo rate gradually beginning February 2022 policy. Bhatt is EVP Debt Investments, Kotak Mahindra Life Insurance Company Limited.
However, Jyoti Roy, DVP- Equity Strategist at Angel One Ltd said that he expected the RBI to remain on hold on policy rates in the next MPC meeting as well. “Given softening energy and commodity prices which will ensure that inflation remains largely in line with the RBI's projection,” he reasoned, adding that “This will give the RBI elbow room to maintain its accommodative stance in the foreseeable future, thus helping growth.”.
The policy was as expected and cautious on the uncertainty due to the Omicron variant, Rakshit said adding that the banking regulator continued with the liquidity normalisation on expected lines without any explicit signal of liquidity withdrawal.
“The RBI kept the key policy rates unchanged in its fourth bi-monthly MPC meeting today and have maintained their accommodative stance. While the outcome of the MPC was in line with our expectations, the Governors’ statement was more dovish than expected, which is positive for the markets,” Roy said.
A similar view was taken by Bhatt and Joshi as well.
“Such slower than expected pace of policy normalization coupled with reduced RBI bond buying may signal a pause in recent trend of yield curve flattening. 10 Year Benchmark Gsec is expected to trade in 6.30% - 6.50% range in the near term,” Bhatt pointed out.
The RBI today maintained its Gross Domestic Product (GDP) growth forecast at 9.5 per cent for FY22 while the inflation forecast for Q4FY22 has been marginally lowered by 10bps to 5.7 per cent and is expected to be at 5 per cent by the end of Q2FY23.
(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)
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