RBI Monetary Policy Committee meet: Here is what you should expect
Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is set to meet for the first time after the presentation of Union Budget and is likely to maintain status quo in rates.
Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is set to meet for the first time after the presentation of Union Budget and is likely to maintain status quo in rates. Despite rate cuts in its recent meetings, the MPC is likely to maintain it at 5.15 per cent in the upcoming monetary policy meeting to be announced on February 6.
"We anticipate the slump in the GDP growth has bottomed out to 5% in 2019-20 and is expected to rebound in 2020-21 to 5.5-6%, aided by government measures and the transmission of past rate cuts", M Govinda Rao, Chief Economic Advisor, Brickwork Ratings told IANS. The MPC is likely to adopt a cautious approach, particularly after the high fiscal deficit, including the off-budget liabilities.
"High food inflation may continue for the next two-three months, and we expect inflation to continue to remain above the MPC`s comfort zone at least in the current fiscal," he added.
Since February 2019, MPC has cut the repo rate in five successive policy meetings and reduced the rates by 135 basis points, cumulatively. The past rate cuts began to get transmitted by banks to borrowers recently as is evident from the declining trend in banks` marginal cost of lending rates.
“From a macroeconomic perspective, growth continues to be a challenge. GDP for FY’20 is likely to be around 4.8%-5% and it is estimated that FY’21 is likely to see growth in the 5.5% to 6% range. Recent high frequency indicators show some green shoots, including IIP numbers for Jan. However, need to see how the growth trajectory pans out," Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank Ltd said.
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She added that the Union Budget has estimated a higher fiscal deficit of 3.8% for this year and a glide path to 3.5%.
"Inflation is likely to trend at a level higher than RBI’s 4 to 4.5% target this quarter. Against this backdrop, the RBI is likely to maintain status quo on rates as well as its monetary policy stance. They are likely to continue an accommodative stance to support growth," she said.
How Markets reacted?
Sensex jumped over 100 points in opening session on Thursday ahead of the MPC amid strong cues from global markets. It was trading 125.32 points or 0.30 per cent higher at 41,267.98, and the broader NSE advanced 46.20 points, or 0.38 per cent, to 12,135.35. On Wednesday, Sensex ended 0.87 per cent or 353.28 points higher at 41,142.66. While, Nifty rose 109.50 points, or 0.91 per cent, to settle at 12,089.15.
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