RBI Monetary Policy Committee (MPC) Announcement: Take On Inflation

The Reserve Bank Of India (RBI), concluded its Monetary Policy Committee (MPC) meeting and stated that the bank is going to keep the repo rate unchanged at 4%, and reverse repo rate at 3.35%, as an accommodative stance. However, economists and analysts are quite concerned about the high inflation rate which is the reason behind major price hike in India. The pandemic has triggered the inflation rate much in the recent period. But, keeping the repo rate low is not helping the inflationary pressures to stay under control. However, the economic growth has been slowing down in the past two years, and the economy needs this monetary support from the government. Commenting on the inflationary front, analysts are having different opinions.

Nitin Shanbhag, Executive Group Vice President - Investment Products, Motilal Oswal Private Wealth told media, "Policy rates remaining unchanged indicates that RBI is more focused on domestic macro variables rather than tracking global central bank actions. While the US Fed has clearly indicated multiple rate hikes going forward to combat rising inflation, the RBI seems far more calibrated in approach given its own projection of domestic CPI peaking in Q4FY22 and moderating in FY23. On the external front, the projection of CAD at 2% of GDP is also positive. Although bond yields will take a breather for now, with the RBI continuing on the path to normalization, we maintain that the yield curve is likely to flatten going forward. Hence, for core fixed income allocation, a barbell approach, that is having core allocation to high-quality accrual oriented funds with short maturities (3-5 years), complemented by 20-30% allocation towards long maturity and high-quality roll down strategies, would remain the preferred strategy."

Ridhima Kansal, Director, Rosemoore mentioned, "The RBI's decision to maintain repo and reverse repo rates at current levels indicates their growth-oriented stance. While inflation continues to be on the higher side and the Indian economy has caught up on an upward growth trajectory after the pandemic-driven crisis, such an outlook by RBI indicates their positive and healthy outlook on the immediate future of the country's economy. No wonder, the resilience of the common man has helped and the central bank seconds it with its positive outlook reflected in the status quo of the monetary policy."

Atul Goel, MD, Goel Ganga Group & President (Elect.), NAREDCO Pune commented on the inflationary pressure, "The RBI objective must be attached to the growth as the past two years were significantly stressful for the country. The RBI policy review might be raising the reverse repo rate as per the suggestions of the monetary policy committee, however, the important part is to keep the price variation within the check for the consumers. The expectation are around 15 to 20 basis points. But overall it would be the RBI way of handling the inflation limits is to be seen rather than the actual conditions prevailing in the country."

However, Manoj Dalmia, founder, and director, Proficient equities Private Ltd. stated, "The RBI The Monetary Policy Committee has kept the repo rate unchanged at 4.00% keeping an accommodative stance to support growth. The rates have remained almost unchanged for the past 10 sessions. The reverse repo rate is unchanged at 3.35% it was expected there would be a change of 15-40 bps to support the budget decision for growth. Increasing Reverse Repo usually signals RBI is ready to pull out excess liquidity, it can be said that it's being done through Variable Rate Reverse Repo. Inflation range is about 2-6%."