RBI Monetary Policy, June 4: Repo Rate Cut Unlikely, All Eyes On Growth Schemes Amid Pandemic - What To Expect

Central Bank's rate-setting panel began its three-day deliberations on Wednesday and experts are of the opinion that it will keep the policy rate intact.

New Delhi: With the Reserve Bank of India (RBI) all set to announce its bi-monthly monetary policy on Friday (June 4), it is expected that Governor Shaktikanta Das will rollout a status quo on benchmark rate largely on account of uncertainty over the impact of the second wave of Covid-19 pandemic.

Central Bank's rate-setting panel began its three-day deliberations on Wednesday and experts are of the opinion that it will keep the policy rate intact over the fears of firming inflation due to the Coronavirus crisis.

On the backdrop of growth-related headwinds in both urban and rural sectors, increase in economic uncertainty, and rise in inflationary pressure, RBI is also expected to pursue the approach of strengthening weak spots in the economy and catalyse liquidity flows in various market segments.

It is to be noted that RBI had kept key interest rates unchanged at the last MPC meeting held in April. The repo rate, which is the key lending rate,  was kept at 4 per cent and the reverse repo rate or the central bank's borrowing rate at 3.35 per cent.

Here's What The Experts Have To Say:

Housing.com

Meanwhile, Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com believes the RBI can maintain its accommodative stance in light of the economic impact of the second wave of COVID-19, without endangering its key goal of keeping inflation under control.

Yes Bank

We do see a realistic chance for the RBI to reduce its earlier growth forecast of 10.5% and highlight increasing risks to the downside. Further, RBI will continue to pursue its broad intent of plugging weak spots in the economy and ensure adequate liquidity flows to various segments.

Indranil Pan, Chief Economist, YES Bank expects a realistic chance for the RBI to reduce its earlier projection of 10.5 per cent to a shade below the 10 per cent level and also highlight increased downside risk to growth.

"On inflation, we expect the MPC to retain its projection of Headline CPI at around 5 per cent level, similar to ours. Despite upside risks core inflation, MPC is likely to draw comfort from the headline inflation remaining within RBI’s target band of 2-6 per cent for FY22, and lower than FY21 print of 6.2 per cent," he said.

Kotak Mahindra Bank

Shanti Ekambaram, Group President Consumer Banking, Kotak Mahindra Bank was of the view that in the current environment, the choices before the Monetary Policy Committee may be limited.

"With the second phase of the pandemic impacting consumption and growth, the MPC will likely maintain status quo on policy rates. While it will keep one eye on inflation levels on the back of rising global commodity prices, it currently will focus on supporting economic growth," Ekambaram said.

Brickwork Ratings

While speaking to news agency PTI, M Govinda Rao, Chief Economic Advisor, Brickwork Ratings said the better-than-expected GDP numbers provide the much-needed comfort to the MPC on the growth outlook.

"Hence, the RBI is likely to continue with its accommodative monetary policy stance. Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Ratings expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent," he noted.

In its annual report released last week, the Central bank has already stressed on conduct of monetary policy in 2021-22, emphasising that it would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis.

RBI MPC Schedule For 2021:

April 5 to 7, 2021

June 2 to 4, 2021 - Incumbent

August 4 to 6, 2021

October 6 to 8, 2021

December 6 to 8, 2021

Major Highlights Of June 4 MPC:

i. Repo rate (lending rate) is likely to continue at 4 percent and reverse repo rate (RBI’s borrowing rate) at 3.35 percent.

ii. RBI is expected to continue with the existing repo rate (lending rate) at 4 per cent

iii. Reverse repo rate (borrowing rate) too is predicted to remain stagnant at 3.35 per cent

iv. Inflation target in the view of Covid pandemic to be at 4 per cent

Watch RBI Monetary Policy Press Conference At 12 PM On Friday (June 4)