RBI to announce policy outcome on 9 October: What to expect?

According to experts, the appointment of economists Ashima Goyal, Jayanth R Varma and Shashanka Bhide as new members of the monetary policy committee (MPC) is unlikely to affect the outcome of the meeting and the interest rates are likely to be left unchanged.

Business Desk, ETV Bharat: The Reserve Bank of India (RBI) on Tuesday announced that the next meeting of the monetary policy committee (MPC) would now be held from 7 October and the decision on interest rates will be announced on 9 October.

The central bank had to earlier delay its bi-monthly MPC meeting that was supposed to take place from 29 September to 1 October. However, a new date was announced as soon as the government appointed three economists -- Ashima Goyal, Jayanth R Varma and Shashanka Bhide -- as new members of the MPC on Monday.

Experts believe that the appointment of new members is unlikely to affect the policy outcome and the panel may still choose to keep interest rates unchanged due to persistently high inflation.

“The monetary policy committee (MPC) meeting scheduled to be held on October 1st has been delayed, probably due to the delay in the appointment of three external members by the government. However, we do not think this will affect the outcome of the MPC meeting. We continue to expect a pause, with CPI (consumer price index) inflation ruling above the 6% upper bound for most of the past nine months,” Nirmal Bang Equities Pvt. Ltd said in a note last week.

To recall, retail inflation remained steady at 6.7% in August 2020, unchanged from the previous month. It remained above the 4% inflation target of RBI for the 11th successive month, while it breached the upper tolerance of 6% for fifth month in a row.

Nirmal Bang’s note added: “The sharp decline in growth in 1QFY21, steps taken by the government to curb supply-side inflation such as the ban on onion exports, muted increase in Rabi minimum support price and a record harvest may all prompt a dovish commentary.”

Prithviraj Srinivasan, chief economist at Axis Capital Ltd, also expects RBI to hold rates in the coming policy meet given the high inflation. He highlighted a recent note by Axis Capital that said: “The MPC will likely reconvene later but if they had met this week, the decision would have been to remain guarded and keep policy rates on hold.”

Another ratings agency Brickwork Ratings also said RBI will hold repo rate at 4% this week. “With the current level of inflation and prevailing uncertainty over the growth outlook, BWR expects the RBI MPC to adopt a wait-and-watch approach and hold the repo rate at 4%, and continue with its accommodative monetary policy stance in its October meeting,” the statement said.

In its last policy meeting held in the first week of August, the MPC had kept the repo rate unchanged and decided to continue with the accommodative stance “as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target going forward”.