Report Wire - Further charge cuts unlikely, RBI could retain accommodative stance

Report Wire

News at Another Perspective

Further charge cuts unlikely, RBI could retain accommodative stance

3 min read

The Monetary Policy Committee (MPC) of the RBI on Wednesday kicked off its three-day deliberations with analysts and score companies anticipating the coverage panel to maintain the benchmark coverage charge — repo charge — unchanged within the wake of uncertainty over the impression of the second wave of Covid-19 pandemic.
The coverage stance and the ahead steerage is prone to be “accommodative” so long as essential to maintain progress on a sturdy foundation whereas inflation stays inside goal, Care Ratings mentioned. The MPC is prone to maintain the coverage charges regular, it added. The Reserve Bank of India (RBI) had saved the repo charge – the central financial institution’s lending charge — unchanged at 4 per cent and the reverse repo charge — borrowing charge — at 3.35 per cent within the April coverage assessment.
“The better-than-expected GDP numbers provide much-needed comfort to the MPC on the growth outlook. With the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified,” mentioned M Govinda Rao, chief financial advisor, Brickwork Ratings.
“Hence, the RBI is likely to continue with its accommodative monetary policy stance. Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Ratings expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent on June 4,” Rao added.
Analysts don’t count on any main change within the financial coverage or the RBI’s posturing about future course on this coverage.

The second Covid wave has raised uncertainty across the future financial outlook and pushed the potential coverage normalisation additional into the longer term.
“The RBI may revise its GDP growth forecast lower and maintain its focus on reviving growth. We believe the RBI has already exhausted the monetary policy option to support growth,” mentioned Pankaj Pathak, fund supervisor, Quantum Mutual Fund.
The RBI had estimated GDP progress at 10.5 per cent for FY22 in its February coverage and retained it on the similar degree in April. With the second Covid wave being alarming, stretching healthcare infrastructure and having opposed financial implications on earnings and consumption, there have been downward revisions within the GDP progress forecast for FY22 by many multilateral establishments.
The RBI, in its Annual Report, mentioned that in probably the most optimistic situation, the macroeconomic prices of the second wave could be restricted to Q1FY22 with doable spillovers into July. The MPC had projected CPI inflation at round 5 per cent for FY22 in its earlier assembly. It is unlikely to tinker with the inflation projection for the yr regardless of the impression of worldwide commodity costs which is being felt throughout the manufacturing and companies sector and firming up of petroleum costs.

Suman Chowdhury, chief analytical officer, Acuité Ratings, mentioned the present focus of the MPC is to assist the delicate financial system and the monetary system from the injury inflicted by the second wave of Covid and to deliver it again once more on a wholesome restoration path over the following few quarters. “We expect the policy stance to remain unequivocally accommodative throughout the current financial year. While there is virtually no scope for a further cut in interest rates given the increased commodity prices and the rising WPI, the status quo on rates is likely to continue for a longer time possibly till the end of FY22. Despite the risks of a build-up of inflationary pressures in the near term, the RBI is likely to give higher priority to the concerns around growth recovery,” he mentioned.
Alok Sheel, RBI Chair Professor in Macroeconomics, ICRIER, mentioned, “Despite CPI being on the higher side, the RBI is unlikely to raise interest rates any time soon, even though the current monetary policy regime primarily targets inflation. Also, greater fiscal support might be required to stabilise growth.”