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RBI to maintain accommodative stance, rates: Survey
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SME Times News Bureau | 01 Dec, 2020
Faster-than-anticipated economic recovery during Q2FY21 along with
healthy macro-economic data points will persuade the Reserve Bank of
India to maintain the growth-boosting accommodative stance in the
upcoming monetary policy review.
On the other hand, persistently
high inflation will deter the RBI's Monetary Policy Committee to
administer a dose of lending rate cut.
In a poll conducted by
IANS, economists and industry experts cited elevated inflation level as a
key determinant for a pause in policy easing.
A policy easing,
if administered, would have theoretically allowed commercial banks to
reduce their lending rates, thereby helping both consumers and the
industry get cheaper finance.
Subsequently, the increased money
flow in the hands of the consumers would have helped boost demand, and
provided a higher flow of capital investment for the industry on the
back of lower cost.
However, this would have also fanned retail inflation which was at an elevated level in the July-October period.
"Despite
retail inflation breaching the 6 per cent target, the policy rate is
expected to remain in a pause mode in the near term," Sunil Kumar Sinha,
Principal Economist, India Ratings & Research, told IANS.
Previously, the rise in retail inflation had led the RBI's MPC to hold the interest rates in August and October.
The MPC has maintained the repo -- or short-term lending -- rate for commercial banks at 4 per cent.
"Considering
that CPI inflation remains at an elevated level, the MPC is likely to
continue with the pause in the rate. With real interest rates are
already in the negative zone, the space for rate reduction is limited at
present," Brickwork Ratings' Chief Economic Advisor M. Govinda Rao
said.
"However, the accommodating stance is likely to continue," Rao added.
Last month, official data showed that India's October retail inflation stood at an elevated level.
Sequentially,
the Consumer Price Index (CPI), which gauges the retail price
inflation, spiked in October to 7.61 per cent from 7.27 per cent in
September.
Though non-comparable, India had recorded a retail
price inflation of over 3 per cent in the corresponding period of
previous year.
As per the data, retail inflation level has
breached the upper limit of the medium-term CPI inflation target of 4
per cent. The target is set within a band of (+/-) 2 per cent.
"With
inflation at an elevated 7.6 per cent in October, and a faster than
expected narrowing in the pace of GDP contraction in Q2FY21, we see no
space for a rate cut in this policy review, even though the
accommodative stance would continue," said Aditi Nayar, Principal
Economist, ICRA.
Last week, official data showed that India's GDP
contracted 7.5 per cent in the July-September period, as the economy
rebounded from a record slump of 23.9 per cent in the previous quarter
due to the slowdown caused by the coronavirus pandemic.
"However,
the accommodative stance would persist to support the expected economic
revival that continues to be threatened by the pandemic," said Suman
Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.
"We
believe that balancing the monetary policy under such a challenging
environment would prove to be difficult and will need the deployment of
all available 'firepower' with the RBI," Chowdhury added.
According
to Madhavi Arora, Lead Economist, Emkay Global: "With inflation
remaining way above the comfort zone of policymakers, the possibility of
further conventional rate cuts is dimming. The market focus will now be
on how the RBI manages the liquidity conundrums. Amid high inflation
and persistent appreciation pressures on the Indian rupee."
Notably,
the RBI has been credited to have effectively managed the bond yields
in the face of the challenges on the fiscal, inflationary and the
currency front. Especially, given the fact that 10 year G-Sec yields
have moved in a narrow band of 5.8-5.9 per cent during the last
two-months.
The RBI's MPC will release its resolution on the monetary policy on December 4.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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84.35
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82.60 |
UK Pound
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106.35
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102.90 |
Euro
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92.50
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89.35 |
Japanese
Yen |
55.05 |
53.40 |
As on 12 Oct, 2024 |
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