RBI MPC meet: Monetary Policy Committee starts discussions on next bi-monthly policy

The Reserve Bank of India's (RBI) rate-setting panel today started discussions to firm up the next bi-monthly monetary policy amid expectations that it might retain status quo on interest rate but change its monetary policy stance amid rising inflation on account of geopolitical developments.

The RBI will delay its first interest rate rise by at least four months to August at the earliest, as per a Reuters poll of economists who said the central bank must now start worrying about inflation.

The Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, is holding its first meeting in the current fiscal on Wednesday. The meeting will be on from 6 to 8 April and the outcome will be announced on 8 April.

In the last 10 meetings, the MPC left interest rate unchanged and also maintained an accommodative monetary policy stance.

The repo rate or the short-term lending rate was last cut on May 22, 2020. Since then, the rate remains at a historic low of 4 per cent.

Asked whether the RBI's Monetary Policy Committee should now shift its focus to inflation from growth, 23 of 37 respondents said it should, while the remaining 14 said it should not.

"I think the extremely dovish members of the MPC need something of a reality check on inflation if they are ever to act. It will probably take some upward shocking inflation numbers for them to pay more attention," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.

RBI may increase its inflation projections for FY23: SBI

In a report this week, State Bank of India (SBI) said the central bank may increase its inflation projections for fiscal 2022-23 considerably and also lower growth projections.

It expects the RBI to continue with a pause on short-term lending rate (repo).

"Prolonged growth supportive stance may have created a signal extraction and coordination problem with administered rates being cut even as inflation has continued to tread up," SBI said in the report.

According to the report, real rates have been negative for a persistent period and "the RBI may like to create a discordant note by emphasising inflation as a threat but at the same time emphasising it is fully seized of it!"

Industry body PHD Chamber's President Pradeep Multani on Wednesday said the economy is still in the recovery process from the daunting impact caused by the coronavirus pandemic and that an accommodative policy stance at this juncture would be inevitable to strengthen the economic fundamentals.

"The recent geopolitical developments though stoke inflation, status quo of the policy rates will help the economy to cope up the impact of external shocks," he said.

The ongoing Russia-Ukraine conflict and surging oil prices are pushing the cost of commodities higher, resulting in rising inflationary trends.

The Centre has mandated the central bank to keep the inflation at 4 per cent, with an upper and lower tolerance level of 2 per cent.

After the February MPC meeting, the central bank had decided to hold its key lending rates steady at record low levels for the 10th straight meeting to support a durable recovery of the economy.

With agency inputs