Could Resort To Mild Liquidity Draining Policies In Forthcoming Monetary Policy
There was clear unanimity that the Reserve Bank of India will maintain status quo on the repo rate and will continue with an accommodative stance in the forthcoming monetary policy, FICCI reported. Growth remains a clear priority for the Central Bank and the same has been clearly communicated in the past rounds of monetary policy announcements. The latest GDP numbers for Q1 of 2021-22 did report a robust y-o-y growth which was backed by a low base. However, on a sequential basis a contraction was reported in the GDP growth in the first quarter. Also, inflation - which is being seen as a major concern -has reported some easing over the last two months. Thus, an accommodative stance is widely expected to be maintained over the near term. Until then, the Central Bank could continue to resort to milder liquidity draining policies.
With regard to heading back to the process of normalization, it was largely felt that the Central Bank may indicate a change of stance from accommodative to neutral in the February 2022 policy meeting. However, a hike in the repo rate only looks imminent in the next fiscal year (April 2022). Also, the path towards positive real interest rates is expected to be a staggered one. Much would be contingent on the build-up in domestic price levels and the extent of tapering by the Federal Reserve.
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