RBI monetary policy review meet begins; here is WHAT TO EXPECT in announcement on 6th August

The Reserve Bank of India's three day monetary policy meet headed by Governor Shaktikanta Das began on Wednesday, August 4 amid fears of a third wave of coronavirus pandemic and hardening of retail inflation.

The bi-monthly monetary policy review will be announced on August 6 at the end of the three-day meeting (August 4 to 6) of the Monetary Policy Committee (MPC).

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The RBI Governor-headed six-member MPC decides on the key policy rates. The panel had left the rates unchanged last time citing concerns on inflation.

As per a report by PTI, the Reserve Bank is likely to maintain status quo on interest rate and watch the developing macroeconomic situation for some more time before taking any decisive action on monetary policy.

"Higher commodity prices and rising global prices post the robust recovery in a few industrial countries will have implications on production costs. We expect the RBI to be in a wait-and-watch mode as it has limited elbow room to manoeuvre monetary policies," opined Rumki Majumdar, Economist, Deloitte India, as quoted by PTI.

The Reserve Bank, which mainly factors in the retail inflation while arriving at its monetary policy, has been mandated by the government to keep Consumer Price Index (CPI) based inflation at 4 per cent with a margin of 2 per cent on either side.

Inflation ruled above the tolerance band during June-November 2020 and has again moved above the upper tolerance threshold in May and June 2021.

The sense is that inflation will persist at these elevated levels for some months before easing in the third quarter of 2021-22 when the kharif harvest arrives in markets, a recent RBI article said, according to PTI.

According to BofA Global Research report as quoted by PTI, "We expect the RBI MPC to look through the transitory hump in inflation and stick with a unanimous dovish pause in the upcoming August 6policy. The MPC is likely to revise up its FY22 average CPI inflation forecast slightly from the previous 5.1 per cent and flag potential upside risks."

As per a research report by Radhika Rao, Economist at DBS Group Research, the six-member monetary policy committee will adopt a wait-and-watch mode in August. "Policy commentary is likely to draw confidence from the turnaround in recent data but express caution over a potential third Covid wave," it said, as per PTI.

The CPI-based retail inflation was 6.26 per cent in June and 6.3 per cent in the previous month.

After the June MPC meet, the Reserve Bank of India had left the benchmark interest rate unchanged at 4 per cent. It was for the sixth time in a row that the MPC maintained status quo on interest rate.