The monetary policy committee of Reserve Bank is widely expected to keep the benchmark interest rate unchanged at its bi-monthly monetary policy review due tomorrow. But the central bank may revise growth estimates in view of the September quarter GDP turning out to be better than RBI’s earlier projections.
“The upcoming RBI MPC policy will likely be a damp squib on conventional policy actions with inflation sticky at over 7% in the near term. While growth concerns and sub-optimal fiscal response may keep MPC’s stance accommodative, the inflation trajectory hints that the bar for further conventional rate cuts becomes high for the rest of FY21. We expect the RBI to raise its inflation and growth forecasts in the upcoming policy,” said Emkay Global Financial Services.
In its October monetary policy statement, the RBI had said the real GDP growth in 2020-21 was expected to be negative at (-) 9.5%, with risks tilted to the downside: (-) 9.8% in Q2:2020-21; (-) 5.6% in Q3; and 0.5% in Q4.
According to experts, the stubborn retail inflation, which has remained above the comfort level of the RBI of around 4%, will refrain the central bank from reducing interest rate on Friday.
The RBI, however, is expected to revise its growth projections as the second quarter GDP numbers at (–) 7.5% worked to be better than its projected contraction.
“Even as the October 2020 policy had shrugged inflation risks as transient, the narrative of eventual fall in inflation with easing supply shocks is yet to play out. While we expect food inflation to ease over the coming months as seasonality kicks in, mandi data is suggesting still-sticky perishable food prices,” Emkay said.
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“We expect the rate-sensitive pack, especially banking and financials, to be in focus tomorrow. The banking index today has been witnessing consolidation in line with the benchmark and might see a directional move after the event, said Ajit Mishra, VP – Research, Religare Broking. (With Agency Inputs)