The Reserve Bank of India's (RBI) three-day Monetary Policy Committee (MPC) meeting is slated to commence on February 3. It is projected that the RBI will keep key policy rate steady but there are also expectations that Union Budget 2021 could drive policy changes. Shaktikanta Das-led 6-member MPC committee will come up with the conclusion of the meeting on February 5.
"We expect the MPC to continue the pause. The fall in inflation rate was mainly due to fall in food prices. The core inflation rate has not come down. Excess liquidity needs to be watched. The vaccine availability is not going to impact macro economy immediately," M Govinda Rao, Chief Economic Advisor, Brickwork Ratings told PTI.
At present, repo rate or the rate at which the central bank lends funds to commercial banks is 4 percent. Last, the RBI revised its policy rate in May in an off-policy cycle to fuel demand by reducing interest to a record low. Since last February, the RBI has slashed policy rate by 115 basis points. 1 basis point is one-hundredth of a percentage point.
This MPC meet shall also be crucial as investors will look out for RBI's sense of Union Budget 2021 and the larger Indian economy.
Aditi Nayar, Principal Economist at ICRA also said they "expect an extended pause for the repo rate, with the stance to be changed to neutral in the August 2021 policy review or later, once there is clarity on the durability of the economic recovery."
In the December month, retail inflation contracted sharply to 4.59 percent from 6.93 percent in November. For taking a decision on the key policy rate, RBI primarily considers the retail inflation number.