‘Expect Repo Rate To Be Maintained At 4% Throughout 2021’, Say Analysts On RBI Policy Review

Reserve Bank of India (RBI) Governor Shaktikanta Das-led Monetary Policy Committee (MPC) will announce its policy decision tomorrow, February 4, at the end of a scheduled review that began on February 3 (Wednesday). This will be the first meeting of the six-member MPC after Finance Minister Nirmala Sitharaman presented Budget 2021 in the Lok Sabha on February 1, amid the COVID-19 pandemic. In the previous policy review meeting, the central bank left the key lending rate unchanged at four per cent, but said that it will ensure ample liquidity for the stressed sectors to keep the economic recovery on track. (Also Read: Will The Reserve Bank Tweak Rates On Friday? Key Things To Watch Out For )

The monetary policy review is significant as it will be presented just a few days after Budget 2021, aimed at reviving the economy battered by the coronavirus crisis. While the previous policy review meeting was held just days after the country entered into a technical recession amid high inflation levels, according to the gross domestic product (GDP) data of the financial year’s second quarter. Here’s what economists and experts seek from tomorrow’s monetary policy review:

‘Repo rate to be maintained at four per cent through rest of 2021’: Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank:

“The RBI will draw comfort with the recent moderation in headline inflation which would keep them on accommodative mode for now complementing the pro-growth intention of the government. However, much more relaxed path of fiscal consolidation would pose upside risks to core inflation thereby prompting some caution. In the upcoming policy we expect the MPC to maintain status quo on rates and monetary policy stance with some clarity or guidance on the pace of normalisation of the operative target rate towards pre-pandemic levels.”

”While we expect the repo rate to be maintained at four per cent through rest of 2021, the reverse repo rate hike of 15-35bps is likely in 2HCY21. We expect the RBI will continue to strive towards bringing the operative rate towards Repo rate through next few quarters largely through tools like variable overnight and term reverse repos.”

‘(Mis)communication loop between the RBI and markets needs to be broken’: Emkay Global Financial Services:  

”The growth-centric budget has implied elevated market borrowings, further spooking the bond market which was already reeling under pressure since January on fears of an apparent liquidity withdrawal. The unintended financial tightening amid a nascent growth recovery is neither optimal nor desirable at current juncture.”

”The upcoming RBI policy will likely be vociferous on communication on being the heavy-duty balancing factor in Gsec demand-supply ahead. We reckon there seems much ado about fiscal dominance of the monetary policy in the current context and monetary policy complementarity is presently needed.”