Reserve Bank Governor Shaktikanta Das-led Monetary Policy Committee (MPC) will announce its policy decision tomorrow i.e. on October 8, at the end of the 3-day bi-monthly review meeting. The monetary policy committee is widely expected to maintain status quo on the repo rate in order to support growth, but some analysts see a slim possibility of a token increase in the reverse repo rate.
Market participants will keep an eye on Reserve Bank’s guidance on liquidity withdrawal, given that surplus cash in the banking system recently topped the Rs 10 trillion mark. Many also expect the banking regulator to announce additional bond purchases; the RBI has already bought bonds worth Rs 2.05 trillion in this fiscal year as part of the government’s securities acquisition program.
All 60 forecasters in a Reuters poll saw no possibility of a change in the repo rate in the upcoming policy. They expect the RBI to raise the repo rate only in April-June 2022, although price pressures have soared due to rising fuel prices.
At its last bi-monthly Monetary Policy Committee (MPC) review meeting held in August, the Reserve Bank maintained status quo on key interest rates for the seventh consecutive time and retained the GDP growth target at 9.5 per cent. It kept the repo rate unchanged at 4 per cent and reverse repo rate untouched at 3.35 per cent.
The RBI has maintained repo rate at a record low of 4 per cent since May 2020, after cutting it by 115 basis points (bps) in early 2020. It had last cut the policy rates on May 22, 2020 in an off-policy cycle to cushion the economy from the aftershock of coronavirus.
The RBI Governor Shaktikanta Das said on Wednesday that India must seek sustainable growth through medium-term investments and sound financial and structural reforms after the global pandemic comes to an end.
Meanwhile, India’s services industry expanded for a second straight month in September, bolstered by improved domestic demand and easing Covid-19 restrictions, pushing companies to hire more employees for the first time in nearly a year. The IHS Markit Services Purchasing Managers’ Index eased to 55.2 in September from August’s 18-month high of 56.7, but stayed comfortably above the 50-mark separating growth from contraction.
And Moody’s has upgraded India’s rating outlook to “stable” from its earlier “negative” outlook. The global rating agency said economic recovery is in progress as activity is gradually picking up and spreading across sectors. Moody’s had last year downgraded India’s rating from Baa2 to Baa3, observing that it could face difficulties in implementing policies to mitigate risks of a sustain period of low growth.