ET NOW poll suggests the RBI is likely to maintain the status quo on both reverse repo and repo rate and also maintain ‘accommodative’ stance in its June monetary policy the outcome of which will be known on June 4, 2021.
Most economists have cut the GDP growth forecast for FY22 to sub 10% however despite the impact of Covid, RBI has so far retained the growth forecast at 10.5% for FY22, and expectations are that RBI may trim the forecast lower.
The focus may however continue to prioritise growth over inflation at least in the near term. While the FY21 GDP growth contraction of 7.3% has been slower than expected, Covid second wave has led to a severe hit on the economy with rural India, the MSME sector, and the bottom of the pyramid being impacted the most.
The RBI already announced relief measures last time in terms of liquidity support to the MFI sector, small businesses; however various industry players have called for more support from the Government and or the RBI to support the bottom of the pyramid.
The RBI already announced Cash Reserve Ratio (CRR) normalisation in February in two phases, CRR has been raised to 3.5% with effect from March 27 and normalised to 4% with effect from May 22, 2021. It will be important to watch the commentary on how long the ‘accommodative’ stance will continue as some of the economists expect normalisation to begin later this year.
In a research note, Nomura said, “On the policy front, we expect the RBI to maintain its accommodative stance this week while announcing GSAP 2.0 to support government bonds. Beyond August, as vaccinations progress, we believe the RBI will assign a higher weighting to inflation. We continue to expect policy normalisation to begin later this year”.
Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mutual Fund said, “While policy rates are likely to be unchanged, it will be key to see if RBI MPC suggests any changes to growth forecast. Q1 FY 22 so far has been muted given the pandemic and resultant localised lockdowns. Bond markets would also be eager to see GSAP 2.0 announcement for Jul- Sep quarter, as government bond supply may not be met with commensurate demand. Bottom line, despite inaction on rates front, walk the talk will be key to market movement post policy.”
