The monetary policy committee is expected to remain broad without changing the repo rate to support the recovery on Friday, but some analysts have noted a small opportunity for the Reserve Bank to offer a token increase in the reverse repo rate.
According to a Reuters poll, all 60 forecasters saw no change in the repo rate on October 8, and the Reserve Bank is expected to raise the repo rate in April-June 2022, despite rising pressure from rising fuel prices.
Madan Sapnavis, chief economist at CARE estimates, wrote: “At the upcoming policy meeting, we do not expect surprises at the policy rate front, at a time when festive demand-driven consumption is expected to increase.”
“While the possibility of an increase in the reverse repo rate cannot be ruled out, it is unlikely to be part of this report,” he added.
In the minutes of an earlier policy meeting in August, outside member Jayant Verma argued that the reverse repo rate should be raised to check growing inflationary pressures.
However, Reserve Bank Deputy Governor Michael Badra said in a speech in September that inflationary pressures were still driven by supply shocks and would only gradually subside.
After the Reserve Bank of India set a higher cut-off than expected at the reverse reverse auction, there has been growing talk of an external opportunity for a reverse repo hike, which traders saw as a sign of the Reserve Bank’s uneasiness from low yields. .
After the repo rate was reduced by 115 basis points (pps) at the beginning of 2020, it has been kept at the lowest level of four per cent since May 2020, while the reverse repo rate has been reduced to 3.35 per cent by 155 pps.
According to a recent poll, inflation is projected to be above the Reserve Bank’s medium-term target of four per cent, but will remain below the upper limit of six per cent until at least the end of 2024.
In recent weeks, traders have been closely monitoring the Reserve Bank’s guidance on withdrawing cash with surplus cash in the banking system.
Arun Srinivasan, Chairman, Fixed Earnings, ICICI Prudential Life Insurance, said:
“Even if the RBI issues an announcement, it will be in the form of operational twists and turns taken by the Reserve Bank recently,” he added.