SME Times News Bureau | 28 Sep, 2020
The Reserve Bank's Monetary Policy Committee (MPC) meet for the
penultimate policy review for 2020 has been rescheduled.
Earlier, the MPC was supposed to have met from Sep 29 to Oct 1.
"The meeting of the Monetary Policy Committee (MPC) during September 29,
30 and October 1, 2020... is being rescheduled," the Reserve Bank said in
a statement on Monday.
"The dates of the MPC's meeting will be announced shortly."
In a poll conducted by IANS, economist
and industry experts cited elevated inflation level as a key determinant for a
pause in policy easing.
Notably, the expected move comes at a time when industrial
output is at historic low due to the Covid-19 pandemic.
A policy easing, if administered, would have theoretically
allowed commercial banks to reduce their lending rates thereby helping both
consumers and the industry to get cheaper finance.
Subsequently, the increased money flow in the hands of
consumers would have helped to boost demand, and for the industry provided a
higher flow of capital investment on the back of lower cost.
Nonetheless, retail inflation has been at an elevated level
during July-August.
"In view of the retail inflation being higher than RBI's
comfort zone for two consecutive quarters in the past and likelihood of it
remaining in excess of 6 per cent in July-September as well, no rate cut is
expected in the upcoming policy review," Sunil Kumar Sinha, Principal
Economist, India Ratings & Research told IANS.
"But RBI will continue to maintain its accommodative
policy stance to signal that policy rates are not going to go up either."
Lately, data showed that India's August retail inflation stood
at an elevated level.
The retail or consumer price index stood at 6.69 per cent in
August. It had risen to 6.73 per cent in July.
As per the data, retail inflation level has reached 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.
"Given the elevated CPI inflation, we expect an extended
pause from the MPC," said Aditi Nayar, Principal Economist, ICRA.
The RBI's MPC (Monetary Policy Committee) is expected to
release its resolution on the monetary policy after their meet on Sep 29th to
Oct 1st, 2020.
"We believe that MPC will continue to hold the interest
rates in the near term given the continuing inflationary concerns," said
Suman Chowdhury Chief Analytical Officer at Acuite Ratings and Research.
"However, the accommodative stance is likely to persist
in the face of the ongoing economic contraction."
Besides inflation, other economic indicators, showed decline
in production and in essence revival of economic growth due to localised
lockdowns, supply chain disruptions and lack of labour supply.
"Our inflation trajectory suggests that technically the
next opportune time to cut may not come before end-3QFY21," said Madhavi
Arora, Lead Economist, FX and Rates for Edelweiss Securities.
"However, the modest reduction in July and August CPI
inflation will provide some comfort for the RBI. We maintain the depth of ongoing
fall in demand is not yet reflected accurately in inflation, and as it starts
to percolate in data and as supply normalise progressively, headline CPI
inflation will likely moderate towards 4 per cent by end-CY20, admittedly also
helped by base effect."
The August datapoint further showed that India's consumer food
price index had eased a bit to 9.05 per cent against 9.27 per cent reported for
July 2020.
On its part, Brickwork Ratings said: "We expect inflation
to remain b elow 6 per cent in Q3FY21 as food inflation is likely to lower in
the wake of abundant harvests."
"The pandemic is still evolving, and credit offtake, even
at a low rate of interest, looks sticky. With uncertainty regarding the
pandemic loom ing large, the RBI may not provide a GDP forecast for FY21 in the
upcoming MPC meeting. As in the previous statements, the RBI may continue to
talk about economic contraction without quantifying the magnitude."
Last month, the MPC of the central bank decided to retain its
key short-term lending rate to curb the rise in inflation, and stabilise the
general economic environment.
Even though it retained the repo rate -- or short-term lending
rate for commercial banks, at 4 per cent, the MPC agreed to maintain the
growth-oriented a ccommodative stance.
Likewise, the reverse repo rate stood unchanged at 3.35 per
cent, and the marginal standing facility (MSF) rate and the 'Bank Rate' at 4.25
per cent.