RBI Monetary Policy Latest Update: The Reserve Bank of India will on Wednesday announce the decision of its bi-monthly monetary policy. As per latest updates, the central bank is likely to keep interest rates at record low amid Omicron fear. The RBI monetary policy committee (MPC) may also keep the key lending rate unchanged at 4 per cent.
Analysts say that the central bank may hike its reverse repo rate early next year and likely to increase its repo rate the following quarter.
Speaking to News 18, Rajani Sinha, chief economist and national director, Research, Knight Frank India, said there were growing expectations that in the December MPC meeting, the RBI would hike the reverse repo rate to narrow the corridor between repo and reverse repo rate.
However, he added that new COVID variant Omicron has again pushed the global and Indian economy in a state of uncertainty and nervousness.
The analysts say that the Reserve Bank will likely hold off on raising its key borrowing and lending rates as it adopts a cautious tone amid Omicron fear.
On the other hand, the reverse repo rate is mostly expected to remain unchanged at 3.35 per cent, but several economists expect a small increase as the central bank tries to normalise the gap between the lending and borrowing rate to pre COVID-19 levels.
It must be noted that the RBI had cut the reverse repo rate more than the repo rate, widening the gap between the two rates to 65 basis points from 25 bps before the pandemic.
Some of the economists feel that given the uncertainties of the new Omicron variant on the economy, the RBI should adopt a wait-and-watch approach despite inflationary pressures.
As the COVID cases were coming down, India’s economy expanded 8.4 per cent in the September quarter from a year earlier but the economists said the disruptions from the new variant risked slowing the recovery.
Notably, inflation has been within the RBI’s 2-6 per cent target range due to the cuts in taxes on fuel by central and local governments but due to damage in perishable food items, the inflation may go up again, say analysts.
