The Reserve Bank of India (RBI) is expected to maintain a status quo on key rates in its bi-monthly policy review to be announced on Wednesday as Omicron, a new strain of Coronavirus, adds to the economic uncertainties. In the last policy review in October, the RBI had kept the key lending rates unchanged for eight consecutive times.
The repo rate, at which the RBI lends short-term funds to banks, was kept unchanged at 4 per cent. The reverse repo rate, at which the RBI borrows from banks, was kept unchanged at 3.35 per cent. The Marginal Standing Facility (MSF) rate was also kept unchanged at 4.25 per cent.
Expert speak
Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP.
Retail inflation has been within the range of 4 (+/-)2 and inflation for October have only marginally increased when compared with September. However, the core inflation remained higher, which remains a worry. There has been a lot of developments over the last month, which is of significance for the MPC. The impact of the new variant is yet uncertain and could undo the positive developments cited by many such as the increase in GST collections, etc. Further, the Federal Reserve of the USA has also indicated that the inflation in the USA is there to stay and is not transitionary.
Federal Reserve could start increasing the interest rates in response, which could force RBI also to increase interest rates but the supply side disruption in the last few months due to shortage of supply of coal, chips, etc. would force RBI to hold the rates until next meet by which time there would be clarity on the impact of the new variant, US Federal Reserve action and the supply side recovery in India. Overall the MPC is expected to tread cautiously in this scenario.
YS Chakravarti, MD & CEO, Shriram City Union Finance
We expect RBI to maintain status quo in the last monetary policy meet for the year 2021. With an increasing possibility however, of the reverse repo being hiked, even as uncertainty surrounding global markets and the Omicron variant persists.
The festival season has been a big boost for consumer, personal and SME loans, especially small ticket loans. Borrower sentiment is on the uptrend, and we are witnessing increased borrower appetite for two-wheeler loans. With strengthening of the economy, we are also seeing green shoots of recovery in the SME segment and expect loan demand to pick up going into 2022.
In an attempt to support economic recovery, the RBI and the government have been pushing to drive credit growth, aided also by lower rates on home and vehicle loans, and we believe this thrust will continue.
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd.
With the economy on an upswing, led by a surge in consumer demand and ample liquidity, it was expected that the MPC would opt for gradual withdrawal of excess liquidity and a change in its accommodative stance in the December policy. However, the looming threat of Omicron and the uncertainty that it has set in motion means that it is now likely that the committee will keep key rates unchanged. A move on the reverse repo rate, which was largely expected in December, will now be postponed to the next calendar year.
