LIVE: RBI Monetary Policy Expectations, Preview - What MPC may announce after meeting
LIVE: RBI Monetary Policy Expectations, Preview - What MPC may announce after meeting
RBI Monetary Policy Expectations LIVE UPDATES: The Reserve Bank's rate-setting panel began its three-day deliberations on Tuesday to decide the next monetary policy in the backdrop of Budget 2022-23, inflationary concerns and evolving geo-political situation.
Reserve Bank Governor Shaktikanta Das headed six-member Monetary Policy Committee (MPC) is scheduled to announce the policy resolution on Thursday. Here are all the LIVE UPDATES on RBI Monetary Policy Expectations:-
Latest Updates
Boman Irani - President- Credai MCHI
"While the Indian economy is charged and on is on its way towards normalcy, we still have a long way to go, to achieve the goals of development and meet the growth rate projected by world bank for India. CREDAI-MCHI expects and urges the RBI to continue to hold the repo rates at the current levels and not increase the same for at least the next 2-3 quarters.
A low home loan interest rate has acted as a catalyst to help revive not just the real estate sector but more than 251 ancillary industries associated with the real estate sector. It is important that RBI maintains the repo rate at the the current level to keep these industries and the economy continued at its recovery and revival mode. I recommend that customers take advantage of the low home loan rate of interests and invest into real estate at the earliest. This recommendation is because I see an inevitable price hike impacting the real estate sector due to increase in raw material costs.’
CREDA-MCHI would also request the government and RBI to come out with schemes and recommendations to boost the commercial real estate sector on the similar lines as the low rate of interest for home loans have pushed the residential sector to the forefront in the last couple of months."
No easy choices but play judiciously with mix and match of tools - Emkay Global
In all, there will be no easy policy choices for the RBI this year. Following the global/DM suit on policy rates without considering domestic dynamics may not be an optimal policy action, especially as
1) the economy has built external sector buffers in case of global disruptions, and
2) the interest rates market has so far largely borne the impact of changing global dynamics.
Even at the cost of conflicting signals, the delicate balancing act of slow policy normalization will come with:
1) A formal mild hike in fixed RR to normalize the corridor amid high variance in money markets, but still keeping a wait-and-watch tone.
2) Stance remaining accommodative with RBI treading carefully on the path of liquidity normalization going ahead, by letting automatic stabilizers, like credit offtake, CIC, FPI flows
direction etc. lead the path3) Cognizance of OMO purchases support in H1FY23, even with possible fiscal revenue surprises and delayed but not denied JPM GBI entry of India bonds
4) Cognizance of not sending confusing policy signals, implying the supports could even be liquidity neutral (CRR hike +OMOs)
5) Also, letting the exchange rate adjust to the new realities and letting it act as a natural stabilizer to growth and policy reaction functions
Shruti Aggarwal, co-founder, Stashfin
On her expectations from the MPC, Shruti Aggarwal, co-founder, Stashfin, said India's GDP growth, which is estimated at 9.2 per cent for 2021-22 will be one of the fastest globally. To maintain and achieve this rate of growth, it'll be challenging for the government to balance upward inflation as well as the risks associated with uncertainty around COVID and oil prices.
"With COVID appearing to abate, an increase in demand can be forecast. A hike in interest rates that keeps inflation around 6 per cent should help in driving liquidity. A clear strategy on inflation and liquidity should further lead to increase in investments. We are optimistic on the economy growth," said Aggarwal.
Shanti Ekambaram, Group President, Consumer Banking, Kotak Mahindra Bank, said amidst global inflation pressures, tightening monetary policies by global central banks, high oil prices, domestic inflation, and the sharp rise in domestic yields, the MPC will have a tight rope-walk as they discuss the monetary policy stance and interest rates in the coming week.
"Given that the overnight call rate is closer to 4 per cent, we expect the RBI to change the reverse repo rate by up to 25 bps or make repo the operative rate. While a repo rate hike is not expected, it is possible that the MPC might change its stance to neutral from accommodative," Ekambaram said.
Madan Sabnavis, Chief Economist, Bank of Baroda, said given the assurance on growth as per the budget and the possibility of inflation rising mainly due to crude oil, "we expect the RBI to start the process of normalisation by increasing the reverse repo rate by 25 bps".
There will be no change in the repo rate this time even though a 50 basis points hike is expected next year, Sabnavis said adding there could be a slight downward revision in the GDP growth rate for FY22.
"Will there be a change in stance. Probably not this time thought the hike in reverse repo rate will send signal of future direction of rates," Sabnavis opined.
In view of inflationary concerns, the Reserve Bank is likely to maintain the status quo on key policy rates in its next bi-monthly economic policy, which will be the first after the presentation of the Union Budget for 2022-23.
Experts, however, are of the opinion that RBI's monetary policy committee (MPC) may change the policy stance from 'accommodative' to 'neutral' and tinker with the reverse-repo rate as part of the liquidity normalisation process.
The rupee declined by 10 paise to close at 74.84 against the US dollar on Wednesday amid persistent foreign fund outflows and elevated crude oil prices. Investors are cautious ahead of the RBI monetary policy to be announced on Thursday, analysts said.
RBI MPC Preview: No easy choices but play judiciously with mix and match of tools: Emkay Global
"In all, there will be no easy policy choices for the RBI this year. Following the global/DM suit on policy rates without considering domestic dynamics may not be an optimal policy action, especially as 1) the economy has built external sector buffers in case of global disruptions, and 2) the interest rates market has so far largely borne the impact of changing global dynamics. Even at the cost of conflicting signals, the delicate balancing act of slow policy normalization will come with:-
1) A formal mild hike in fixed RR to normalize the corridor amid high variance in money markets, but still keeping a wait-and-watch tone.
2) Stance remaining accommodative with RBI treading carefully on the path of liquidity normalization going ahead, by letting automatic stabilizers, like credit offtake, CIC, FPI flows
direction etc. lead the path3) Cognizance of OMO purchases support in H1FY23, even with possible fiscal revenue surprises and delayed but not denied JPM GBI entry of India bonds
4) Cognizance of not sending confusing policy signals, implying the supports could even be liquidity neutral (CRR hike +OMOs)
5) Also, letting the exchange rate adjust to the new realities and letting it act as a natural stabilizer to growth and policy reaction functions."
Lakshmi Iyer, CIO (Debt) & Head - Products, Kotak Mahindra Asset Management Company
“After a shocker for bond yields post budget, all eyes are now on the MPC meet. Given the mammoth borrowing for FY23 , there are hopes for RBI to Announce OT(operation twist) which could act as an anchor to long term bond yields. We expect reverse repo rate to be hiked with other rates unchanged. We do not expect any major tweaks to GDP or inflation forecasts.”
RBI Monetary Policy Feb 2022: Preview by Emkay Global - Key highlights:
- Fair possibility of 15-25bps Reverse repo hike but all eyes will be on guidance ahead
- Management of still-high liquidity deluge while supporting bonds will be a challenge
- Regulatory forbearance for banks’ HTM bucket may be extended
- OMO + CRR hike combo will also face communication challenge
RBI Monetary Policy Feb 2022: Preview - Emkay Global
"Higher term premia to impede with policy intent of durable growth."
Recent auction cancellations due to high GOI cash balance could help soothe market nerves, but a huge supply next fiscal (even with some upside surprise on revenue stream) will require the RBI’s invisible hand in a more visible fashion, implying return of a pre-committed GSAPs. This, however, will interfere with the RBI’s aim of liquidity normalization, balance sheet preservation and a possible change in stance and repo hike(s) ahead, starting with a fixed RR hike. Conversely, a further increase in term premia could percolate to credit markets and impede the policy aim to push trend growth by encouraging private capex.
RBI Monetary Policy Feb 2022: Preview - Emkay Global
"Who bears the cost of fiscal/external sector dominance of monetary policy -- Rates or FX markets?"
Emkay Global says, "We note that the macro adjustment owing to a change in global and domestic dynamics (US rates repricing, Brent surge, sharp FPI outflows, twin deficit, etc.) has so far been borne by the rates market, while the exchange rate market has been resilient (Ex. 16-18). Though this risks a catch-up impact on the FX market in coming months, this could also imply the blowup in the rates market could ease. While the rates market has historically been responsive to the fiscal stance and monetary policy anchors, specifically inflation, supply management by the RBI in the past has been a key player in determining the market clearing price (Ex 9). Near-term inflation risks are real: 1) a $10/bbl increase in oil raises CPI
inflation by ~35bps; 2) slow fiscal consolidation even with capex-led spending and penal taxes on imported manufacturing/capital goods products could be near-term inflationary. Besides, revert of fiscal dominance of monetary policy will put the RBI in a catch-22 state just when it commenced (orderly) normalization.RBI Monetary Policy Feb 2022: Preview - On face of it, a fixed reverse repo hike looks to be a formality, says Emkay Global
"The RBI’s second tryst with liquidity repricing using VRRRs has been relatively smoother amid better communication. Money market rates have generally risen well in line with higher weighted RR. This was partly also led by some normalization in liquidity (down to Rs6.5tn+ from Rs8.5tn+ in Dec’21 policy) owing to an increase in currency in circulation amid limited GOI drawdown in surplus, OMO secondary sales since Oct’21 (Rs240bn), FPI outflows (US$10.8bn since Oct’21) and higher trade and BoP deficit. Besides, the RBI appears to have partly rolled over its heavy load of maturing long FX forwards -- partly explaining high forward rates. With money markets aligning with new realities, a formal hike in fixed RR by 15-25bps looks more like a formality, especially with 1) a limited macro impact from Omicron, 2) upside risk on inflation, with Brent comfortably above $90/bbl, and 3) high variance in the call money rate amid such a wide policy corridor and with TREPS still hugging the lower end of the corridor."
RBI Monetary Policy Feb 2022: Preview - Emkay Global
"…However, the communication (and action) channel is easier said than done, says Emkay Global
"The journey from current Rs6.5tn+ system liquidity to a pre-Covid normal of Rs 2tn+ is still going to be long-drawn. This implies unease with regard to the co-existence of liquidity/policy normalization, and accommodation is likely to persist. This also comes on the back of still-divided growth-inflation trade off debate in an economy that 1) is still running sub-par and has missing levers of durable growth, 2) may face upside pressure due to inflation in H1FY23 (RBI’s forecast 5%) with consistently surging Brent prices (up 20% since mid-Dec) despite tighter global rates, 3) the return of twin deficit pressure, and 4) upside surprise on market borrowings (Rs11.2tn - 67% of fiscal deficit) combined with risk of delayed GBI inclusion amid no change in FPI capital gains tax in the budget. That said, changing global financial dynamics may require the MPC to be vigilant on the rates front and respond judiciously to keep risk premia adequate for FPIs. All of this means that the term premia is already near an all-time high as the Gsec market shows nervousness around impending policy actions and a possible supply-demand mismatch in the absence of RBI. Against this backdrop, even a reverse repo hike or a stance change could disturb the market further. Thus, cautious policy treading and communication will be the key."
RBI Monetary Policy Feb 2022: Preview - Emkay Global
"The macro adjustment owing to changing global and domestic dynamics has so far been borne by the rates market while the FX market has been resilient. Amid ultra-elevated term
premia, India’s current real rates look reasonable vs. EMs, given the present crosscurrents. This could give some leeway to the RBI’s reaction function to conduct shallow normalization."RBI Monetary Policy Feb 2022: Preview - Emkay Global
"The macro adjustment owing to changing global and domestic dynamics has so far been borne by the rates market while the FX market has been resilient. Amid ultra-elevated term
premia, India’s current real rates look reasonable vs. EMs, given the present crosscurrents. This could give some leeway to the RBI’s reaction function to conduct shallow normalization."RBI Monetary Policy Feb 2022: Preview - Emkay Global
" The gradualist approach toward liquidity and rate normalization may be challenged by various global and domestic push-and-pull factors. Nonetheless, a huge bond supply in FY23 (even with
upside surprise on tax revenues) will require the RBI’s invisible hand in a more visible fashion, implying return of a pre-committed GSAPs. An uncomfortable RBI may neutralize that with CRR
hikes, albeit it will face some communication challenges."RBI Monetary Policy Feb 2022: Preview - Emkay Global
"The MPC policy is a close call as RBI needs to balance policy conundrums amid surging term premia. While a mild 15-25bps hike in fixed reverse repo (RR) may not be too disruptive at this
stage, markets will still have to be assuaged over material tightening of financial conditions."MPC Feb-22 Preview: Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
“With central bank’s proactive balance sheet support with respect to bond purchases likely to get challenging amidst the need for policy normalization, upside pressure on yields could continue to persist. As such, we continue to stick to our call of 10Y g-sec yield drifting higher towards 7.25% by Mar-23.”
MPC Feb-22 Preview: Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
“As such, we believe RBI could consider moving reverse repo rate up by 20 bps in the Feb-22 policy review to signal the initiation of interest rate normalization cycle while retaining the accommodative stance and the repo rate till the growth signals in the economy become durable. This will also be consistent with its ongoing emphasis on rationalization of liquidity surplus, which has already pushed short term money market rates higher.”
MPC Feb-22 Preview: Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
"Short term rates apart, 10-year yields have also spiked significantly in Jan-22 on fears of potential capital outflows after the US Fed delivered a more hawkish than expected policy outcome. In addition, higher than expected bond yields market borrowings by the government announced in the Union Budget and lack of any clarity on the likelihood of India’s inclusion in global bond indices further weighed on the market sentiment pushing 10-year yields sharply higher beyond our expectations. The yields which were at 6.05% as on Feb 5, 2021, has moved up gradually in the last calendar year and sharply of late to 6.87% as on Feb 4, 2022. Clearly, such a rise in bond yields in the backdrop of elevated global commodity prices, higher global inflation and rising interest rates in key economies do make a case for interest rate normalization by the RBI at least in a gradual manner."
MPC Feb-22 Preview by Acuité Ratings and Research
"Global commodity prices have firmed up sharply in Jan-22, with crude oil prices in particular currently hovering close to USD 91 pb that will lead to continuing input price pressures for both the manufacturing and the services sector. Additionally, progress on vaccinations along with recovery in personal mobility (barring the temporary disruption on account of Omicron) will continue to support pent-up or revenge demand and could keep core inflation elevated."
MPC Feb-22 Preview by Acuité Ratings and Research
"While the RBI has not given indications of any formal monetary policy normalization in its previous meetings, it has already undertaken a liquidity calibration exercise in the system and drain out the excess liquidity through an increased quantum of VRRR auctions. In our opinion, there is an adequately strong rationale for the central bank to initiate changes in its monetary policy stance in 2022 amidst hawkish pivots made by major central banks, limited spill over effect from the spread of Omicron variant, significant drop in Covid infections towards the end of Jan-22 along with persistent inflationary concerns. "
MPC Feb-22 Preview:
Policy normalization may not be far away; Moderate hike in reverse repo rate likely in the current policy, says Acuité Ratings and Research
MPC Feb-22 Preview by Acuité Ratings and Research
"Systemically important central banks have started to scale back their pandemic era accommodative policies amidst high inflationary pressures globally. Fed and BoE are major central banks who have initiated their monetary policy normalization with a rather hawkish pivot in Dec-21 and Jan-22. Notably, the Fed in its last policy meeting also hinted at halting the asset purchases and raise interest rates as soon as March-2022. On the other hand, BoE also raised its interest rates for the second consecutive time in three months to 0.5% in a bid to manage the surging inflation. We believe that most of the central banks are likely to join the normalization bandwagon in the year 2022."
RBI Monetary Policy Zee Business Poll: Results
Do you expect Repo Rate changes in this Policy?
-Yes : 0%
-No: 100%
Do you Expect Reverse Repo Rate changes ?
-Yes: 35% (10-20 Bps)
-No: 65%
What's the quantum of hikes do you expect in CY22?
10Bps -15 Bps: 5%
15Bps-25 Bps: 25%
25Bps -50 Bps: 70%
Will RBI Continue Accommodative Stance?
-Yes: 85%
-No: 15%
If not this time, by when do you expect a hike in the repo rate?
hike from FY23?)
-Q1FY23: 90%
-Q2FY23 Onwards: 10%
Will RBI revise GDP Estimates?
-Yes: 70%
-No Change: 30%
Will RBI revise the CPI Estimates?
-Yes: 25%
- No Change: 75%
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd.
‘MPC may Change Stance to Neutral, Change in Reverse Repo Rate Likely’
“Amidst global inflation pressures, tightening monetary policies by global central banks, high oil prices, domestic inflation, and sharp rise in domestic yields, the MPC will have a tight rope-walk as they discuss the monetary policy stance and interest rates in the coming week. Over the last two years, the MPC has prioritised growth and has provided ample liquidity in the wake and aftermath of COVID-19. However, the last few months have seen growth slowly recovering. The liquidity normalisation measures by RBI have resulted in increase in rates across the yield curve."
“Given that the overnight call rate is closer to 4%, we expect the RBI to change the reverse repo rate by up to 25 bps or make repo the operative rate. While a repo rate hike is not expected, it is possible that the MPC might change their stance to neutral from accommodative. Watch out for the narrative and tone of the MPC to get an indication on the expected interest rates in this calendar year.”
Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance
"We believe that RBI and has a challenging task at hand. Growth recovery is still uneven and due to various reasons like high oil prices, supply chain disruption, cost pressures are building up thereby leading to sticky core inflation. With its major thrust on capital spending in the recent Budget 2022-23, the fiscal policy continues to be overall supportive of long term growth. Given that on one hand uncertainty around the Covid variants continue and growth is still uneven, inflationary expectations remain high and globally central banks are withdrawing easy monetary policy, against this backdrop, we expect the RBI to continue its path of policy normalization but, rather slowly. As food inflation is likely to be benign, we expect the RBI to hike reverse repo rate first and then may be towards the second half of 2022 there could be a hike in repo rate as well. We expect the RBI to continue with its sops for the MSME / SME sector and support the weaker section of the society. Since MSMEs and self-employed have been the most impacted during the pandemic and most NBFCs lend to this segment, we are hopeful of some additional credit and policy support. CV sales in Q3 have been flat, however with the infra push from the budget 2022 we expect healthy revival in credit in 2022".
Anand Nevatia, Fund Manager, Trust Mutual Fund
"The FY23 budget is expansionary in nature and has laid out a large borrowing program. While some part of borrowing is to come from Green bonds, markets will look forward to guidance on how RBI will manage the large borrowing program. RBI has also been managing excessive systemic liquidity through VRRR auctions for some time now and there could be some action on more durable withdrawal of liquidity in this MPC. While the reverse repo rate is outside the purview of the MPC, there are expectations that a hike in reverse repo rate by RBI could coincide with this MPC. Given the global backdrop of most central bankers moving away from the extra accommodative monetary stance and hiking key rates, RBI could move to a neutral stance to have the flexibility to hike rates as and when required."
Vivek Rathi, Director -Research, Knight Frank India
“The Indian economy has weathered well the COVID storm and continues to be the fastest growing economy. However, the third wave and Omicron eruption in the country highlight the prolonged pandemic effects that the economy may continue to face. We believe that the central bank will keep a close watch on consumer inflation level, which is elevated but within the tolerance band. Given the high inflationary expectations on account of increasing crude oil and commodity prices, accelerated liquidity tightening measures are expected. However, we expect that the key policy rates will be maintained for some time before the economy conclusively comes out of the pandemic third wave.”
Dhaval Ajmera, Director, Ajmera Realty and Infra India Ltd
"The RBI's MPC will be unveiling its monetary policy later this week, this will be the last policy for the current fiscal. While the broader expectation is that the central bank will stay put with its key rates and policy stance. What will be interesting to watch is the guidance it provides on the interest rate trajectory for the rest of the year."
"After a heavy-duty CAPEX budget by the government, it will be interesting to watch how the central bank will do the heavy lifting on the borrowing front, also maintain an easy liquidity scenario to aid the economic growth simultaneously."
"As the economy is recovering and interest rates rising, the central bank has to start hiking rates, what will be important is to maintain a balance as global central banks will start reversing their easy monetary policy and it may lead to capital flight. The real estate and construction sector expects the central bank to adopt a staggered and easy spread out rate tightening cycle in the next few quarters."
YS Chakravarti, MD & CEO, Shriram City Union Finance
"We expect a Status Quo on repo rates, with a reverse repo rate hike of 25bps in the monetary policy to be announced on February 10, 2022. The RBI needs to address the rising inflation, liquidity normalization, rising long-term yields, and global tightening by Fed/ECB/BoE. On the demand front, there is renewed demand for credit with FY22 - January 14, 2022, showing credit growth of 8% but still lagging behind FY19 credit growth levels of over 14%. Interestingly, in Q3 FY22 at Shriram City, we witnessed record disbursements driven by MSME and 2W loans. Therefore, believing credit up-tick in 2H FY22 signals a pick-up in economic activity. The Budget 2022’s infra spend will further provide support to the economy in FY23."
- It is widely anticipated that the MPC is likely to maintain the status quo on the benchmark interest rate or repo rate.
- Experts, however, are of the opinion that the MPC may change the policy stance from 'accommodative' to 'neutral' and tinker with the reverse-repo rate as part of the liquidity normalisation process.
- If the RBI maintains status quo in policy rate on Thursday, it would be the tenth consecutive time since the rate remains unchanged. The central bank had last revised the policy rate on May 22, 2020, in an off-policy cycle to perk up demand by cutting interest rate to a historic low.
-The meeting was to start on Monday but it was postponed by a day in view of Maharashtra declaring public holiday on February 7 to mourn the death of legendary singer Lata Mangeshkar.
- According to Brickwork Ratings, the RBI may continue to hold the policy rates at current levels in the upcoming policy meeting.
- "We expect the MPC to start increasing the policy rates beginning with normalising the policy corridor between repo and reverse repo rate. We expect the RBI to hike the reverse repo rate in its April 2022 policy meeting," it said.
- The outlook on inflation and growth may remain unchanged for the current fiscal, while the statement is keenly awaited for its forward guidance on inflation and the GDP for the next fiscal, it added.
- The MPC has been tasked by the government to keep inflation in the range of 2-6 per cent.
- The last MPC held in December 2021 had kept the benchmark interest rate unchanged at 4 per cent and decided to continue with its accommodative stance against the backdrop of concerns over the emergence of the new coronavirus variant Omicron.
- Citing the massive spike in credit growth during the first half and the steeper fall in deposits and the resultant rise in term money rates, coupled with the record high borrowings, an SBI report has called for a 20 bps increase in reverse repo rate outside the MPC ambit so that the central bank find buyers for the flooding new debt papers.
- The budget 2023 has pegged the Centre's gross borrowing at a record Rs 14.3 lakh crore and for the FY22 at Rs 10.5 lakh crore, lower than Rs 13.5 lakh crore this fiscal, while together with the states, the gross borrowing will be Rs 23.3 lakh crore and net will be Rs 17.8 lakh crore, the report said. The budget seeks to pay back Rs 3.1 lakh crore next fiscal, up from Rs 2.7 lakh crore this fiscal, it added.
- While during the first half of FY22 itself, signs of credit recovery became visible, the latest data for the week to January 14, 2022, shows all banks incremental credit grew by Rs 5.46 lakh crore, more than double of Rs 2.72 lakh crore in the same period last fiscal, the report said, adding as against this, the incremental deposit growth was only Rs 8.6 lakh crore, down from Rs 10.5 lakh crore.
- It is widely anticipated that the MPC is likely to maintain the status quo on the benchmark interest rate or repo rate.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.