Regarding the policy rate i.e. repo rate in the monetary policy review meeting of the Reserve Bank of India to be held on August 8, a foreign brokerage HSBC said on Wednesday that the RBI will keep its key rates stable. Yes, the RBI may seem more confident of reaching the inflation target. According to the news of Bhasha, HSBC said in the report on the eve of the RBI MPC decision that the rate-setting panel may prefer to stick to the stance of ‘withdrawal of accommodative’ monetary policy.
The policy stance will remain unchanged
According to the news, while it is a close call, we also think the policy stance will remain unchanged even though the RBI seems more confident than before about achieving its 4 percent inflation target, it listed aspects in the document or resolution that it will look at. These include further commentary on growing confidence in achieving 4 percent inflation sustainably, or changes in growth or inflation forecasts, and the use of OMO (open market operation) sales to drain out excess liquidity.
Will keep an eye on these
In the backdrop of another member dissenting in the last policy review, the brokerage said the number of MPC members calling for a rate cut or a change in stance will also be closely watched. Besides, it said any further colour on plans to change regulatory requirements on liquidity coverage ratio, which is reported to have an impact on banks’ profitability, will also be watched.
On stance questions, the brokerage said there are several points in support of a dovish stance from the current accommodative stance, adding that there are an equal number of factors against such a move. Factors such as global turmoil, improving rainfall, soft core inflation, weak credit growth and fiscal consolidation support a dovish stance, while on the other hand, there are competing factors such as a long wait for a durable decline in food inflation, loose financial conditions, OMO sales and strong growth on the other side.
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