RBIs end of GSAP in line with global peers, 15-20 bps reverse repo hike likely in next policy meeting in December: Experts
According to monetary policy experts, the Reserve Bank of India (RBI) will increase the reverse repo rate by 15-20 bps in its next monetary policy review meeting in December. The experts further opined that central bank will hike the repo rate at a similar level by the end of the current financial year.
The revised Monetary Policy of the Reserve Bank of India (RBI) is in in tune with its global peers that have initiated policy normalization process and the central bank’s decision to suspend the G-Sec Acquisition Programme (GSAP) for now is a good case in point, say experts.
“RBI embarked on a subtle journey of policy normalisation, announcing that there is no need for a further G-Sec acquisition program,” observed Amar Ambani, Senior President and Head of Institutional Equities, YES Securities after RBI Governor Shaktikanta Das headed panel announced the revised monetary policy at the end of 3-day long meeting.
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RBI’s end of GSAP is in line with the policy normalization process of global central banks, he added.
Echoing his views, domestic rating agency CRISIL has said RBI is signalling a gradual move towards ‘normalising’ its monetary policy.
“It (RBI) did not extend the government security (G-sec) acquisition programme (GSAP), and announced greater absorption of liquidity under upcoming variable rate reverse repo operations (VRRRs), said CRISIL in a research report.
Like many other central banks, the RBI is signalling a gradual move towards ‘normalising’ its monetary policy as the economy emerges from the shadow of the second wave, the report added.
At the end of its monetary policy review last April, the RBI had announced G-SAP of Rs 1 lakh crore for Q1 FY22 with a view to enable a stable and orderly evolution of the yield curve amid comfortable liquidity conditions.
The RBI extended the programme last July by announcing G-SAP 2.0 to the tune of Rs 20,000 crore.
Hike in Repo Rate, Reverse Repo Rate in near future
According to CRISIL, it expects the central bank will continue the normalisation measures in the coming months and a hike in the repo rate by 25 basis points by fiscal 2022-end, assuming strengthening economic recovery and elevated inflation risks.
Expressing a similar opinion, Ambani said he expects the RBI will hike the reverse repo rate in the range of 15-20 bps in the next policy meeting that will be held for three days starting from December 6, 2021.
“We think there is a strong chance of a 15-20bps hike in the reverse repo rate in the December policy meeting. A move on the repo rate will probably prevail by the end of this fiscal year, with RBI buying time before the supply and demand conditions stabilize,” he added.
The 3-day long bi-monthly Monetary Policy Committee meeting ended on Friday. At the end of the meeting, the central bank has kept the repo rate unchanged at 4% and reverse repo rate at 3.5% to support the supply and demand conditions in the economy deeply impacted by the Covid-19 pandemic.
The Bank had last revised its policy rate in May 2020 in an off-policy cycle to perk up demand by cutting the interest rate to a historic low.
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