Economists do not expect any change in the main policy rate for Reserve Bank of India in today's policy. The main policy rates have been steady at 4% since May last year. But this meeting is not about rates, here are the three things traders and economists are watching out for-:
Inflation: The central banker is likely to raise it’s inflation target but may also signal that it’s just a ’transitory phase’ not a structural long term problem. RBI’s current inflation bet for the year at 5.1% may need to be adjusted upwards to 5.5% given the pass through pressure from global commodities as well as a wide pressure from across the food and core baskets. For 21 months now, inflation has stayed above 4% mark.
Growth: Despite spikes in covid cases in certain parts of the country, largely economic normalisation is on-track through the economy. The central bank is likely to retain its growth estimate of 9.5% for the year to March 2022 even though we have seen a slew of GDP forecast from brokerages and even the RBI.
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Money, Money Money: Excess liquidity could be a concern for the central bank, Bloomberg Economics estimates excess cash is at over Rs 8 lakh crore ($107.8 billion. Inflation could force the RBI’s hand into drawing out some of this liquidity by tinkering rates on the reverse repo side affecting banks.
Policy rates were last cut on May 22, 2020, in an off-policy cycle when the covid-19 pandemic first hit the country.