RBI MPC meet begins today: Analysts see no change in key interest rates

RBI | [Image: Shutterstock]

The Reserve Bank of India (RBI) will begin Monetary Policy Committee (MPC) meeting today, August 4, to decide key interest rates. The central bank is expected to leave interest rates at record lows for a seventh straight meeting.

Most analysts said the RBI won’t raise interest rates till next year, while some expect the central bank to offer some clues as to when it will start reducing liquidity in the commentary that will be released after the 3-day meeting concludes on August 6.

A poll conducted by Reuters found that all economists (61) see no change in the repo rate which has been steady at 4 percent since May last year.

But the consensus expected the RBI to make two 25 basis point increases next fiscal year, taking the repo rate to 4.50 percent by end-March 2023.

Also, the commentary on the impact of the second wave and stickiness of inflation will be in focus during the 3-day meet which ends on August 6.

"Two aspects will be top-of-mind when the RBI's MPC meets this week — durability of the rebound from the second wave as well as concerns over stickiness in inflation," Radhika Rao, senior economist at DBS Bank, Singapore told Moneycontrol.

According to Rao, a host of high-frequency indicators signal that the economic momentum has largely recovered from the slump caused by the second wave of the pandemic. Yet few key risks remain.

"The hastened vaccination rollout, a turnaround in activity indicators, and buoyant agricultural output (if the monsoon catches up) are reasons to remain upbeat," she said. "However, a slower improvement in aggregate demand and the lag in reopening of services sector activity has tempered optimism."

Risks of a third Covid wave and its impact also cloud the horizon, she added.