The Reserve Bank of India is expected to keep interest rates on hold and postpone policy normalization at a key meeting this week as the Omicron variant of the novel coronavirus poses risks to the country’s economic recovery. India.

The central bank’s Monetary Policy Committee (MPC) is expected to narrow the policy corridor between repo and reverse repo by increasing the latter at the end of its three-day meeting on Wednesday. However, 60% of those polled in a Mint poll of bankers and economists expect the RBI to maintain the repo rate (the rate at which banks lend to the RBI against government securities) at 3.35%. Only 40% expect a 15 to 20 basis point increase in the repo rate.

“The RBI will likely continue to assess that the negative output gap in the economy is still quite large and should require continued monetary policy support. There is no indication yet that inflation expectations for the The future are strong and, therefore, the RBI may be relatively comfortable with inflation for now, especially as oil prices and other global commodity prices have peaked. don’t even expect the RBI to hit the political corridor immediately, ”said Indranil Pan, chief economist at Yes Bank.

After holding growth forecasts in its last two meetings, the MPC can recognize the strong underlying growth momentum. Real GDP grew 8.4% in the second quarter, beating the MPC forecast by 7.9%.

While 50% of those surveyed expect RBI to keep the growth forecast for FY22 at 9.5% to account for the potential downside risks associated with the spread of the Omicron variant, the 50% the rest expect it to be raised closer to 10%.

“FY22 second quarter GDP was 8.4% and the RBI had forecast 7.9% for the quarter; Therefore, we believe that the GDP forecast for fiscal year 22 should be revised slightly upwards from 9.5% to 9.6% -9.7%, ”said Soumya Kanti Ghosh, Chief Economist, State Bank of India.

Despite cuts in fuel taxes, inflation is a cause for concern. Retail price inflation slowed from 5.3% in August to 4.3% in September before accelerating slightly to 4.5% in October. RBI can be wary of increases in food prices and telecommunications tariffs. Part of the market expects the inflation forecast for FY22 to be revised to 5.5% from the current 5.3%.

“RBI will have to adjust its inflation forecast upwards, given the upside surprise in 2QFY22 compared to their forecast. They will have to take into account the conflicts linked to inflation such as the fall in fuel prices induced by excise duties, the rise in telecommunications tariffs, the volatility of vegetable prices, the correction of world prices of raw materials and raw materials. signs of loosening supply chains globally (and a possible reversal amid Omicron), “said Madhavi Arora, chief economist, Emkay Global Financial Services.

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