RBI Monetary Policy: Will Key Rates Remain Unchanged? Know What To Expect In First Review After Budget

Analysts and industry leaders feel that the RBI will maintain the key rates at the same level and look at increasing key rates in April

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New Delhi: The six-member Monetary Policy Committee (MPC) led by Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday will make announcements about key rates at 10 am. This policy review assumes significance as it comes after the 2022 Union Budget was announced earlier this month. 

The MPC began its three-day bi-monthly policy review meet on Tuesday. The meeting earlier planned to take place on February 7, Monday, was rescheduled to a day later after Maharashtra declared February 7 a public holiday to mourn the death of legendary singer Lata Mangeshkar.

Key Things To Watch Out For

RBI is likely to keep key policy rates, including repo and reverse repo rates, unchanged in its monetary policy review, according to the news agency ANI report. Also, this will be the last policy review of the financial year 2021-22.

Analysts and industry leaders feel that the RBI will maintain the key rates at the same level and look at increasing key rates in April.

"The Union Budget 2022 has stressed on growth rather than fiscal consolidation clearly indicating its priority. In order to support this, the RBI should maintain the low-interest rate regime and keep the policy repo rate unchanged in its monetary policy," according to Mahesh Desai, Chairman, Engineering Export Promotion Council (EEPC) of India.

However, going by the Reuters poll of economists the central bank will raise the reverse repo rate the rate at which it borrows from banks - to 3.55 percent from 3.35 percent. Such an increase will narrow the gap between the repo rate to 45 basis points (bps), according to Reuters.

The RBI has not changed key policy rates for over one-and-a-half years.

If the policy rates don't change on Thursday, it would be the tenth consecutive time since the rate remains unchanged. 

In May 2020, the RBI had slashed the key interest rates to a historic low to support the economy ravaged by the Covid-19 pandemic.

The repo rate, the interest rate at which the RBI lends short-term funds to banks, was slashed to 4 percent. The reverse repo rate, the interest rate at which the RBI borrows from banks, was reduced to 3.35 percent in May 2020. 

Going by the news agency ANI report, the RBI may change the policy stance from "accommodative" to "neutral" and marginally increase the reverse repo rate according to experts.

The Monetary Policy Committee's policy will consider the announcements made in the Union Budget 2022-23 by Finance Minister Nirmala Sitharaman before taking any action on rates.

The last MPC held in December 2021 had kept the benchmark interest rate unchanged at 4 percent and decided to continue with its accommodative stance against the backdrop of concerns over the emergence of the new coronavirus variant Omicron.

The MPC has been tasked by the government to keep inflation in the range of 2-6 percent.