MPC Likely To Maintain Status Quo On Policy Rates
Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
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By Sunil Garodia
First publised on 2022-04-04 10:47:10
About the Author
Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
View all posts by this Author
The Monetary Policy Committee (MPC) of the RBI is to meet for its policy rate review this week. Since the last meeting two months ago when status quo was maintained on the rates, a lot has changed. For one, the already high inflation has increased further and will increase more as fuel rates have been upwardly revised significantly, pushing up transport costs. Also, the sanctions against Russia and the global supply chain disruptions due to the war in Ukraine will fuel inflation further. Food inflation is very high and the overall inflation is hovering around the upper limit of the comfort zone set by the MPC. Central banks the world over have junked their accommodative stance and are going for raising of interest rates and squeezing out excess liquidity from the financial markets to curb inflation which they consider a big threat.
So what does the RBI do in such a scenario? Does it follow the lead of the other central banks and increase the reverse repo rate to squeeze out the money floating in the economy? Given that private consumption demand has not gone up substantially, the RBI thinks that inflation is not the result of too much money chasing too few goods but is due to high commodity prices and supply chain disruptions. If it continues with this thinking, it will continue to bat for growth and as per its last estimates, will consider a 4.5% or 5% rate of inflation not high enough to change its accommodative stance and increase the reverse repo rate. In February, RBI governor Shaktikanta Das had said that the apex bank will continue with its accommodative stance "for as long as necessary to revive and sustain growth on a durable basis". With the economy showing signs of a slow but steady revival, as reflected in record GST collections in March and high overall collections in Q3 and Q4 of FY2022 and other economic indicators, there is every reason to believe that the MPC will not upset the applecart and maintain status quo on policy rates.
