RBI to keep rates on hold

Mumbai: The Reserve Bank of India is expected to keep key rates unchanged at its upcoming monetary policy review, but may for the first time since February provide guidance on how the economy is performing amid the coronavirus pandemic.

All 66 respondents in a Reuters poll expect the repo rate to remain unchanged at 4.0% and a large majority see no cuts until the January-March quarter. The RBI will then likely stay on hold until the end of 2021.

The MPC which was scheduled to meet between Sept. 29 to Oct. 1 but will now meet at a later date which is yet to be announced, RBI said on Monday.

The central bank must manage high retail inflation while keeping policy accommodative to support an economy which nosedived 23.9% last quarter, the weakest performance on record.

It has so far slashed rates by 115 basis points in response to the COVID-19 pandemic since late March.

India’s inflation-constrained central bank is unlikely to deliver a rate cut, and we expect all policy rates to stay unchanged, said Rahul Bajoria, economist with Barclays adding that the RBI will however provide economic projections.

India is gradually reopening its economy from a lockdown but economic activity remains depressed as coronavirus cases top six million, the second-highest globally.

The South Asian country was already facing a cyclical downturn before the pandemic struck and is now expected to mark its first full-year contraction since 1979 this year as millions are left unemployed in the world’s second-most populous country.

The RBI has so far refrained from providing any forecasts on growth or inflation due to the heightened uncertainty and risk of projections having to be revised frequently.

However, the central bank is required by law to provide economic forecasts once every six months.

Data projections from the central bank will be critical, as it would lay out the RBI’s assessment of the extent of the current slowdown and the medium-term implications of the current crisis, Bajoria said.

The RBI has maintained that it sees the current rise in inflation as transitional and expects to see prices come down, giving it room to reduce rates to support growth.

August inflation, at 6.69%, held above the top end of the RBI’s medium-term target range of 2-6% for the fifth consecutive month amid supply disruptions.