New Delhi: All eyes are on Reserve Bank Governor Shaktikanta Das as he prepares to announce the first monetary policy announcement of the current fiscal starting Friday (April 1). Economists and market watchers are keen to know the Reserve Bank’s outlook on inflation management, which is hovering above the RBI’s comfort level. India’s wholesale inflation has been in double digits for the past 11 months while retail inflation was above 6 per cent in January and February.
The monetary policy to be announced by the RBI governor today will signal to the market whether India’s conservative central bank will follow the inflation control path adopted by other major central banks such as the US Federal Reserve or it will continue to maintain an adjustment. Stance to boost growth despite high inflation.
India’s wholesale inflation as measured by the Wholesale Price Index (WPI) has been in double digits for the past 11 months and India’s retail inflation as measured by the Consumer Price Index (CPI) has been above 6% in both January and February . Under the Reserve Bank of India Act, the RBI is legally mandated to keep retail inflation below six per cent.
Despite high inflation, some economists and industry experts are of the view that the RBI’s monetary policy committee meeting, which began on Wednesday (April 6) should adopt a low-interest regime to support a delicate economic recovery. is likely to be sustained, which is threatened by further outbreaks. Russo-Ukraine War on 24 February
YS Chakraborty, MD and CEO, Shriram City Union Finance, says the committee is likely to keep key policy rates unchanged in the upcoming monetary policy meeting, given the fact that domestic growth is still at an early stage. However, he added that the RBI may revise its inflation and growth forecasts due to the rise in crude oil prices in the international market.
“Even as RBI is reiterating its commitment to support growth and easy liquidity, some revision in inflation and growth forecasts can be expected. The overall growth rate has suffered a setback due to higher commodity and input prices and chip shortage,” Chakraborty told ETV India. He further added that rising inflation, though transient and imported, will weigh on growth in the coming months. He said rising input prices and rise in crude oil and global commodity prices do not point to an easy path and may delay spending and impact business and consumer sentiment.
Whatever decision RBI’s Monetary Policy Committee takes, it is going to be a tough call as the liquidity measures announced in the wake of the COVID-19 global pandemic will have a direct impact on consumer sentiment as the low-interest regime has hit Indian consumers. Helped to buy automobiles and homes even during the pandemic. The tightening of interest rates will also impact corporate investment which has been weak throughout the pandemic period.
“Tightening of interest rates and opening up of various pandemic-related funding measures could create liquidity challenges, especially for mid-sized corporates. In addition, consumption will be impacted due to reduction in export demand and increase in domestic leverage and fall in earnings,” India Ratings had said in a note.
YS Chakraborty of Shriram City Union Finance says RBI should continue to support small businesses and MSMEs, which are just beginning to emerge from the slowdown due to the pandemic. “Demand for two-wheelers and retail or personal loans is driving corporate demand even though the demand for two-wheelers is below their pre-pandemic levels, and lower interest rates will help sustain the trend,” Chakraborty said.
Last week, RBI Governor Shaktikanta Das acknowledged that monetary policy announcements were an art of sentiment management and the bank needed to pass it on to the markets and consumers. “Since monetary policy is an art of managing expectations, central banks are required to shape market expectations, not only through announcements and actions, but also through continual refinement of their communication strategies to ensure desired social outcomes. And it takes constant effort to put the langar,” Das said. said.