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RBI MPC Meet: Three key policy announcements to watch out for

Bond traders will be watching to see whether the central bank announces a second tranche of its so-called government securities acquisition program, or its version of quantitative easing, for the July to September period. (Mint)Premium
Bond traders will be watching to see whether the central bank announces a second tranche of its so-called government securities acquisition program, or its version of quantitative easing, for the July to September period. (Mint)

The Reserve Bank of India’s six-member Monetary Policy Committee will keep the benchmark repurchase rate at 4% Friday, according to all 44 economists surveyed by Bloomberg.

The Reserve Bank of India on Friday is likely to keep its key rate at a record low but reaffirm its commitment to provide adequate liquidity as the country grapples with a deadly second wave of the COVID-19 pandemic.

The Reserve Bank of India’s six-member Monetary Policy Committee will keep the benchmark repurchase rate at 4% Friday, according to all 44 economists surveyed by Bloomberg.

Eye on RBI's bond-buying program

Bond traders will be watching to see whether the central bank announces a second tranche of its so-called government securities acquisition program, or its version of quantitative easing, for the July to September period.

Under the first tranche, the RBI has so far bought bonds worth 600 billion rupees ($8 billion) of the total one trillion rupees it planned to purchase in the quarter ending June. The program, together with its own version of ‘Operation Twist’ where it buys long-dated bonds and sells the shorter ones, has helped the central bank keep benchmark 10-year sovereign yields anchored around 6%.

Track growth rospects

The central bank, which expects the economy to expand 10.5% in the year that began April, may probably lower its forecast after a slew of recent high-frequency indicators showed a hit to activity. It’s current reading is underpinned by expectations of a normal monsoon, a return of pent-up demand once lockdowns end and an improved pace of vaccination. A revision, though, will be a close call.

Inflation Outlook

A rise in input and wholesale costs due partly to supply disruptions caused by the pandemic are beginning to feed into retail inflation -- the measure targeted by the RBI to decide its monetary policy setting. That could nudge the central bank to revise its forecast, which is pegged at 5.2% for the current and next quarter, 4.4% for the three months to December and 5.1% in fiscal fourth quarter.

Although food inflation has eased, dragging down the headline number, any decline in overall price pressures will be short-lived, according to Bloomberg Economics’ Abhishek Gupta. He expects supply shortages due to lockdowns and rising commodity costs pushing retail prices higher.

With inputs from Bloomberg

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