RBI expected to hold interest rate this week – Times of India

MUMBAI: Downside risks to the RBI’s 9.5% growth projection have ebbed. However, the central bank is expected to keep rates on hold and continue with its accommodative stance in its monetary policy committee (MPC) meeting, which concludes on August 6. According to analysts, the first sign of a decision by the RBI tapering off its accommodative policy would come from tolerance to higher yield in government bond auctions.
“Our reading of high-frequency activity indicators suggests no reason for the RBI to adjust its overall growth outlook, though its inflation forecasts may need to be revised modestly higher,” said Barclays Bank chief economist Rahul Bajoria. According to Bajoria, liquidity normalisation is already under way and there is a notable reduction in system liquidity during H1 of 2021. “Moreover, we think the rise in liquidity during the past month indicates that the RBI is adopting a ‘passive strategy’, which will allow organic factors like currency in circulation to slowly drain the liquidity surplus over time,” he said.
After cutting the repo rate (at which it lends to banks) to a record low of 4% by May 2020 amid the lockdown, the RBI has kept rates on hold for well over a year. While India was hit hard by the Delta variant that resulted in the second wave of the pandemic, the economic impact has been shorter.