Reserve Bank Monetary Policy On Friday: Here Are Things To Watch Out

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The RBI Governor had retained the repo rate at 4 per cent and reverse repo rate at 3.35 per cent in April

Reserve Bank Governor Shaktikanta Das-led Monetary Policy Committee (MPC) will announce its policy decision on Friday, at the end of a scheduled review that started on Wednesday. The RBI Governor had retained the repo rate at 4 per cent and reverse repo rate at 3.35 per cent at its last policy meet in April. The central bank is expected to keep the key lending rates unchanged again as it evaluates economic impact of the second covid wave. According to a Reuters poll of 51 economists, the MPC is likely to hold the rates at existing levels.

Perhaps more than the rate action, experts will keep a watch on the central bank’s outlook on growth, indications on future policy stance, inflation forecasts and commentary on the state of the economy. Traders would also look out for any announcements on the vis-a-vis bond purchase program.

The second Covid wave has inflicted massive damage on economic activities and rendered scores of people jobless across the country. India has recorded around 2.8 crore covid-19 infection cases since last year, second only to the United States, and more than 3 lakh casualties.

The Monetary Policy Committee (MPC) has kept the key benchmark rates unchanged at the past five monetary policy review meetings. The central bank had last cut its policy rates on May 22, 2020, in an off-policy cycle when the covid-19 pandemic first shook the country.

The Reserve Bank has slashed its key lending rates ie repo rate by 115 basis points since March 2020 to cushion the economy from the aftershock of coronavirus.

The RBI, in its first bi-monthly monetary policy review for financial year 2021-22, had retained its GDP growth projection at 10.5 per cent for fiscal 2021-22. As per the gross domestic product (GDP) estimates government released earlier this week, the economy contracted by 7.3 per cent in financial year 2020-21, while the agriculture sector witnessed a growth of 3.6 per cent, and the services and industry sectors contracted by 8.4 per cent and seven per cent respectively.

Many economists believe that the worse may be over as cautious unlocking has started in many states amid initial signs that the second Covid curve may have tapered.

The retail inflation has also eased to a three-month low of 4.29 per cent on the account of reduction in food prices such as vegetables and cereals, according to government data. The RBI in its bi-monthly monetary policy review in April 2021 targeted the retail inflation at 5.2 per cent in the first half of the current fiscal 2021-22 and within the two – six per cent band in the medium term.

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