RBI to enable policy normalization for this fiscal year, Details here

Economists, henceforth, anticipate RBI to start with policy normalization just after the fourth quarter of the current fiscal year.

Economists expect RBI to come up with a revised average of 5.5% from 5.1% for the FY22 Consumer Price Index (CPI) catering to the growth-inflation trade-off, faced by the MPC.

 

Policy Normalization

Even though the inflation rate remained below the MPC lines, the RBI has ensured to maintain an accommodative policy stance to back growth, since 2019. With the budding consumer price inflation rate crossing the 6% upper band bars for two continuous months attached by the increasing crude oil prices, concerns have accumulated that whether the MPC will be able to upkeep the accommodative policy for long. Economists, henceforth, anticipate RBI to start with policy normalization just after the fourth quarter of the current fiscal year.

Predicting Inflation

As the MPC faces a growth-inflation trade-off, economists expect RBI to revise the average FY22 Consumer Price Index (CPI)-based inflation projection to around 5.5% from the earlier projected 5.1%. Analysts believe that RBI should explore the recent surge in inflation as a “transitory phenomenon” and make policy interventions.

Foreseeing Growth

Economists believe that RBI will be aware and responsible for the variegated recovery strategies of different sectors of the economy and the dissimilar formal and informal zones. Thus, RBI should maintain at least 9.5% of the GDP growth forecast for FY22.

Yield Curve

Since July. the RBI has been arbitrating into various sectors of the yield curve, to target an arranged model of the yield curve. On the 10-year paper, the yield is now trading at 6.20%, surpassing RBI’s tolerance level of 6%.

Rates and remarks

The Reserve Bank of India is probable to keep the policy rates and policy stance unaltered until the third wave of COVID emerges and will also slow down the velocity of vaccination.  As per the economists, RBI’s monetary policy committee (MPC) will upkeep the repo rate constant at 4 per cent up to the seventh straight meeting.

Source Mint
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