Monetary Policy: Will RBI maintain status quo or hike interest rates? Announcement at 10 am

Reserve Bank of India (RBI) Governor Shaktikanta Das will announce the decision of the Monetary Policy Committee (MPC) on key interest rates today. The rate-setting panel started discussions on Wednesday to firm up the next bi-monthly monetary policy.

This is the first meeting of the MPC, headed by RBI Governor Shaktikanta Das, in the current financial year. There are expectations that the MPC might retain status quo on interest rates but change its monetary policy stance amid rising inflation on account of geopolitical developments.

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.

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

After the February MPC meeting, the RBI 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.

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