Policy normalisation could be signalled by October 8: Standard Chartered
Standard Chartered also expects a firmer signal, which could be the need of the hour if another surge in infections is completely ruled out
In a research note by Standard Chartered Bank, it said that the Reserve Bank of India (RBI) is likely to start opening its accommodative monetary policy, which would cushion the economic impact of the pandemic at a meeting next week, The Economic Times reported. The consensus view is that RBI will start reducing the gap between the repo and the reverse repo rates, and then bring in the monetary policy. For now it will keep interest rates unchanged at its October 8 MPC meeting.
RBI may hold repo rates
At the December 2021 and at the February 2022 policy meetings, Standard Chartered expects the country’s Monetary Policy Committee (MPC) to hike the reverse rate by 40 basis points to 3.75%. They had also expected hikes in February and April 2022.
However, some economists including those of Standard Chartered has brought their policy normalisation expectations amid concerns of rapid increase of domestic inflation. from high oil and global commodity prices and also sharp rise in costs of vaccination.
This has now increased the risk of an earlier hike, though economists expect the repo rate hike to be only in August 2022. Adding to that, a nominal increase in the reverse repo rate is expected on October 8 due to the higher cut-offs at recent variable rate reverse repo auctions, they added.
Standard Chartered also expects a firmer signal, which could be the need of the hour if another surge in infections is completely ruled out. As India enters the festival season, supportive monetary policy, in addition may likely help sentiment and demand, they added.