All eyes on 1st RBI policy review under Shaktikanta Das; will there be a rate cut?

After the Interim Budget, all eyes are now on first Reserve Bank of India (RBI) policy meeting under new governor Shaktikanta Das next week

After the Interim Budget, all eyes are now on first Reserve Bank of India (RBI) policy meeting under new governor Shaktikanta Das next week, in which, experts say, the Monetary Policy Committee is likely to maintain status quo for the second time in a row. The RBI Monetary Policy Committee (MPC) policy review is on February 7.

Former Finance Ministry top bureaucrat, Das, was appointed the governor of the central bank in December after Urjit Patel’s exit, arguably, due to many contentious issues.

The bi-monthly policy decision is most likely to be influenced by the Budget announcement as well, experts said. The repo rate presently is 6.5%, and former RBI governor Patel had signaled the possibility of rate cut if inflation continued to plunge. However, with the Budget deviating from the fiscal consolidation path, the RBI may only choose to change the stance from ‘calibrated tightening’ to ‘neutral’.

“The government’s announcements suggest that economic priorities have taken precedence over near-term fiscal consolidation as the 3% fiscal deficit target stands delayed. The consumption push and growth stimulus will be positive for growth, but limits scope for an aggressive monetary easing cycle,” Radhika Rao, Economist, DBS Group said, adding that the RBI will take a pause.

Nomura and JM Financials also said that the RBI will keep the repo rate unchanged in the review meeting even as low inflation and liquidity concerns have prompted the industry to expect a rate cut. “There is a high likelihood of a change in RBI stance from ‘calibrated tightening’ to ‘neutral’ with a possible rate cut in the next MPC meeting. Fiscal slippage, however, continues to be a risk for rate cut,” a JM Financial report said.

Source: Financial Express

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