RBI Begins Three-day Monetary Policy Meeting to Deliberate on Key Interest Rates

On Tuesday, the Reserve Bank’s rate-setting panel began its three-day deliberations to determine the next monetary policy in light of Budget 2022-23, inflationary worries, and the changing geopolitical scenario.

On Thursday, the six-member Monetary Policy Committee (MPC), chaired by Reserve Bank Governor Shaktikanta Das, is expected to release the policy resolution.

The meeting was scheduled to begin on Monday, but it was postponed by one day due to Maharashtra’s declaration of a public holiday on February 7 in honor of iconic vocalist Lata Mangeshkar’s death.

The MPC is widely expected to keep the benchmark interest rate, sometimes known as the repo rate, unchanged.

Experts, on the other hand, believe that as part of the liquidity normalization process, the MPC may modify its policy stance from “accommodative” to “neutral” and tamper with the reverse-repo rate.

If the RBI keeps the policy rate constant on Thursday, it will be the tenth time in a row that the rate has remained unchanged. The policy rate was last changed on May 22, 2020, in an off-policy cycle to boost demand by reducing interest rates to a historic low.

According to Brickwork Ratings, the RBI is likely to maintain existing policy rates at its upcoming policy meeting.

“The MPC is expected to begin raising policy rates, starting with the policy corridor between repo and reverse repo rates. In its April 2022 policy meeting, the RBI is expected to raise the reverse repo rate “It was stated.

The outlook for inflation and growth for the current fiscal year may stay unchanged, while the statement’s forward guidance on inflation and GDP for the next fiscal year is eagerly anticipated, it added.

The most recent MPC meeting, held in December 2021, left the benchmark interest rate at 4% and chose to keep its accommodative stance despite concerns over the development of the novel coronavirus variant Omicron.

The government has given the MPC the responsibility of keeping inflation between 2% and 6%.

An SBI report has called for a 20 basis point increase in the reverse repo rate outside the MPC ambit to help the central bank find buyers for the flood of new debt papers. The report cites the massive increase in credit growth during the first half, as well as the steeper fall in deposits and the resulting rise in term money rates, as well as the record high borrowings.

According to the report, the Centre’s gross borrowing will be a record Rs 14.3 lakh crore in 2023, and Rs 10.5 lakh crore in FY22, down from Rs 13.5 lakh crore this fiscal, while the gross borrowing will be Rs 23.3 lakh crore and the net borrowing will be Rs 17.8 lakh crore when combined with the states. It was also said that the budget aims to repay Rs 3.1 lakh crore next fiscal year, up from Rs 2.7 lakh crore this fiscal year.

While signs of credit recovery emerged in the first half of FY22, the most recent data for the week ending January 14, 2022, shows all banks incremental credit increased by Rs 5.46 lakh crore, more than double the Rs 2.72 lakh crore seen in the same period last fiscal, according to the report, while incremental deposit growth was only Rs 8.6 lakh crore, down from Rs 10.5 lakh crore.