RBI Seen Holding Rates Steady As Virus Cases Mount: Poll


The annual retail inflation rate rose to 5.03 per cent in February, a three-month high

The Reserve Bank of India is widely expected to keep key interest steady on Wednesday amid a surge in Covid-19 cases in the country, but may revise its inflation projections higher. In a Reuters poll, 65 of 66 economists surveyed said the RBI’s monetary policy committee (MPC) will leave rates unchanged.

“We expect the MPC to come up with another dovish pause on Wednesday, especially with Covid-19 cases rising,” said Indranil Sengupta, an economist at Bank of America Securities.”The RBI’s focus will remain on funding the rising fiscal deficit without pushing up yields to the point it hurts the (economic) recovery,” he added.

India reported a record rise in coronavirus infections on Monday, becoming only the second country after the United States to register more than 100,000 new cases in a day. However, several economists said they expect the central bank to raise its inflation forecasts amid a rise in global commodity prices particularly crude oil. The annual retail inflation rate rose to 5.03 per cent in February, a three-month high due to the rise in fuel prices

“The April policy review is unlikely to see a significant shift in the RBI’s guidance, while risks will be flagged but (may) not sound alarmist,” said Radhika Rao, economist with DBS Bank.

“While the initial impact (of rising commodity and input prices) will be more visible in wholesale price inflation, which has a heftier weight of commodities, this could carry pass-through risks for retail inflation down the line,” she added. Economists had been expecting the RBI to start normalising policy or unwinding the large scale rupee liquidity in the banking system in the June or latest by September quarter but that is now expected to be delayed, many analysts said.

The rise in virus cases could impact the economy if the country imposes nationwide lockdowns that impact industries and consumption, but so far that hasn’t been the case. A recent poll showed economists now expect the economy to grow a record 27.0 per cent this quarter after expanding only 1.5 per cent in the January-March period.

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