RBI Monetary Policy: Expectations Of A Hike In Reverse Repo Rate Remain

The RBI Monetary Policy Meet comes against the backdrop of rising inflation, soaring crude prices and a robust borrowing programme of the government. Most industry observers expect a hike in the reverse repo rate.

Says Anand Nevatia, Fund Manager, Trust Mutual Fund, "The FY23 budget is expansionary in nature and has laid out a large borrowing program. While some part of borrowing is to come from Green bonds, markets will look forward to guidance on how RBI will manage the large borrowing program. RBI has also been managing excessive systemic liquidity through VRRR auctions for some time now and there could be some action on more durable withdrawal of liquidity in this MPC".

According to him, while the reverse repo rate is outside the purview of the MPC, there are expectations that a hike in reverse repo rate by RBI could coincide with this MPC. "Given the global backdrop of most central bankers moving away from the extra accommodative monetary stance and hiking key rates, RBI could move to a neutral stance to have the flexibility to hike rates as and when required," Nevatia states.

According to Dhaval Ajmera, Director, Ajmera Realty and Infra India Ltd, the RBI's MPC will be unveiling its monetary policy later this week, this will be the last policy for the current fiscal.

"While the broader expectation is that the central bank will stay put with its key rates and policy stance. What will be interesting to watch is the guidance it provides on the interest rate trajectory for the rest of the year," he states.

According to him, after a heavy-duty CAPEX budget by the government, it will be interesting to watch how the central bank will do the heavy lifting on the borrowing front, also maintain an easy liquidity scenario to aid the economic growth simultaneously.

"As the economy is recovering and interest rates rising, the central bank has to start hiking rates, what will be important is to maintain a balance as global central banks will start reversing their easy monetary policy and it may lead to capital flight. The real estate and construction sector expects the central bank to adopt a staggered and easy spread out rate tightening cycle in the next few quarters," he states.