RBI likely to maintain status quo on benchmark interest rate

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By Ashish Mitra --
Thursday, 04 Feb, 2021

The Reserve Bank is likely to maintain a status quo on benchmark interest rate in its next monetary policy meet outcome to be announced on February 5. Experts are of the view that the central bank will refrain from tinkering with the interest rates and keep the monetary stance accommodative at the policy review though it will take guidance from the budget presented by Finance Minister Nirmala Sitharaman on February 1.

'We expect the MPC (Monetary Policy Committee) 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,' opined M Govinda Rao, Chief Economic Advisor, Brickwork Ratings.

The six-member MPC headed by the RBI Governor is meeting for three days from February 3 and the resolution meeting would be announced on February 5. The current repo rate or rate at which the RBI lends to banks is 4 per cent.

The RBI had last revised its policy rate on May 22 in an off-policy cycle to perk up demand by cutting interest rate to a historic low. The RBI has cut policy rates by 115 basis points since February last.

On expectations from the MPC, Aditi Nayar, Principal Economist, ICRA Limited said that even though the CPI inflation dipped in December 2020, the trajectory remains unpalatable. 'We 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,' she said.

Ramesh Nair, former CEO of JLL India said that the real estate sector has been one of the most impacted sectors after the pandemic and multiple lockdowns.

The RBI will have to cut policy rates which will help reduce home loan rates as well as wholesale lending rates which will revive growth in the pandemic-ravaged real estate economy, he opined. 'Also the cut in these rates have to be complimented with transmission of these cuts to end users and developers, increase in quantum of credit and increase in tenure,' he said.

As per the latest data, retail inflation fell sharply to 4.59 per cent in December last year. Retail inflation based on the Consumer Price Index (CPI) was 6.93 per cent in November. The RBI mainly factors in the retail inflation while arriving at its policy rate. The RBI has been asked by the government to keep the retail inflation at 4 per cent (+,- 2 per cent).

RBI likely to maintain status quo on benchmark interest rate.  The Reserve Bank is likely to maintain a status quo on benchmark interest rate in its next monetary policy meet outcome to be announced on February 5. Experts are of the view that the central bank will refrain from tinkering with the interest rates and keep the monetary stance accommodative at the policy review though it will take guidance from the budget presented by Finance Minister Nirmala Sitharaman on February 1.

'We expect the MPC (Monetary Policy Committee) 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,' opined M Govinda Rao, Chief Economic Advisor, Brickwork Ratings.

The six-member MPC headed by the RBI Governor is meeting for three days from February 3 and the resolution meeting would be announced on February 5. The current repo rate or rate at which the RBI lends to banks is 4 per cent.

The RBI had last revised its policy rate on May 22 in an off-policy cycle to perk up demand by cutting interest rate to a historic low. The RBI has cut policy rates by 115 basis points since February last.

On expectations from the MPC, Aditi Nayar, Principal Economist, ICRA Limited said that even though the CPI inflation dipped in December 2020, the trajectory remains unpalatable. 'We 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,' she said.

Ramesh Nair, former CEO of JLL India said that the real estate sector has been one of the most impacted sectors after the pandemic and multiple lockdowns.

The RBI will have to cut policy rates which will help reduce home loan rates as well as wholesale lending rates which will revive growth in the pandemic-ravaged real estate economy, he opined.  'Also the cut in these rates have to be complimented with transmission of these cuts to end users and developers, increase in quantum of credit and increase in tenure,' he said.

As per the latest data, retail inflation fell sharply to 4.59 per cent in December last year. Retail inflation based on the Consumer Price Index (CPI) was 6.93 per cent in November. The RBI mainly factors in the retail inflation while arriving at its policy rate. The RBI has been asked by the government to keep the retail inflation at 4 per cent (+,- 2 per cent).