RBI is likely to keep its policy stance and key rates unchanged at the bi-monthly monetary review this Friday, a poll of bankers, economists and fund managers showed, The Economic Times reported.
However, the banking regulator could modify its earlier forecast on inflation, factoring in the impact of higher fuel prices that rose across the globe since the start of the war in Ukraine, wrote Economic Times.
The majority of the 21 poll participants said the first policy review meeting of the central bank's Monetary Policy Committee (MPC) since the Russian invasion of Ukraine will likely focus on the impact of rising prices of oil on revival in consumption demand, seen as crucial to undergirding a durable recovery in the broader economy.
“In the current circumstances, you cannot say the economy is going to recover as previously anticipated,” said Rahul Bajoria, India economist, Barclays Bank. “The central bank will assess the impact of rising inflation on consumer spending across the country, which in turn will directly weigh on the desired pace of GDP growth.”
Inflation as measured by the consumer price index may be revised higher by up to 100 basis points, to around 5.5 percent, for FY23. Similarly, the real GDP growth estimate, now pegged at 7.8 percent, could be trimmed by 20-40 basis points.
“The MPC will have to balance the optimal growth-inflation tradeoff amid escalated geopolitical uncertainties,” said Saugata Bhattacharya, chief economist at Axis Bank. “The MPC will, and ideally should at this point, refrain from changing any policy parameters, given the emphasised intent of telegraphing well in advance any policy re-orientation. Communication for sensitising the markets on the need for anchoring inflation expectations should probably start at this review itself.”
Brent crude oil prices surged to nearly $140 per barrel, the highest since 2008, in the immediate aftermath of the Russian invasion, adding the fiscal burden on large oil importing nations such as India. However, crude prices are now off the boil since the US announced tapping into its strategic reserves to cool prices. Bankers and analysts do not expect the Reserve Bank of India (RBI) to alter its pro-growth stance.
“The RBI would not want to trigger any change in its growth supportive stance at this point, given the evolving economic parameters, to avoid any potential signalling impact,” said Rajni Thakur, chief economist, RBL Bank.
In February, consumer prices rose 6.07 percent, beyond the RBI’s comfort zone.
The government would borrow ₹8.45 lakh crore in the first half of 2022-23, or 60 percent of the planned borrowing for the full year, a sum higher than average market expectations.