Fiscal Fears: RBI to maintain rates, accommodative stance (IANS Poll)

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By Rohit Vaid
New Delhi/Mumbai, Feb 4 |
High fiscal deficit levels along with fears of fanning inflations will deter the Reserve Bank of India (RBI) from administering a dose of lending rate cut during the last monetary policy review of FY21.

In a poll conducted by IANS, economists and industry experts cited limited headroom for further monetary policy easing along with a wait of full transmission of past rate cuts as a key determinant for a pause in policy easing.

However, a growth-boosting accommodative stance is expected to be maintained.

“Despite the fall in retail inflation, the monetary policy committee (MPC) is expected to maintain the current lending rates,” Sunil Kumar Sinha, Principal Economist, India Ratings & Research, told IANS.

“The MPC has limited head-room for cutting rates and may like to retain the firepower for exigencies. On the other hand, the accommodative stance will continue, since the growth needs support and transmission of the past rate cuts is still playing out.”

A policy easing, if administered, would have theoretically allowed commercial banks to reduce their lending rates, thereby helping both consumers and the industry get cheaper finance.

Subsequently, the increased money flow in the hands of the consumers would have helped boost demand, and provided a higher flow of capital investment for the industry on the back of lower cost.

“Even though the CPI inflation dipped in December 2020, the trajectory remains unpalatable,” said Aditi Nayar, Principal Economist, ICRA.

“We expect an extended pause for the repo rate, with the stance to be changed to neutral in the August 2021 policy review or later, once there is clarity on the durability of the economic recovery.”

Last month, official data showed that India’s December retail inflation came within the RBI’s comfort zone.

“We expect the MPC to continue the pause. The fall in inflation rate was mainly due to fall in food prices,” Brickwork Ratings’ Chief Economic Advisor M. Govinda Rao said.

“The core inflation rate has not come down.”

Sequentially, the Consumer Price Index (CPI), which gauges the retail price inflation, rose to 4.59 per cent in December from 6.93 per cent in November.

The Consumer Food Price Index (CFPI) for last month came in at 3.41 per cent, down from 9.50 per cent in November 2020.

As per the data, retail inflation level has come back within the limits of the medium-term CPI inflation target of 4 per cent. The target is set within a band of (+/-) 2 per cent.

“The likelihood of any rate cut is minimal in the near term given the sharply higher fiscal deficit regimen and the risk of continuing inflationary pressures though CPI has cooled down of late,” said Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research.

The MPC has maintained the repo — or short-term lending — rate for commercial banks at 4 per cent.

“We believe that the countercyclical fiscal stance is indispensable at the current juncture to sustain demand and mitigate the long-term costs of the crisis,” said Madhavi Arora, Lead Economist, Emkay Global.

“Monetary policy can complement these efforts, amid its current constraint effective lower bound of policy rates.”

(Rohit Vaid can be contacted at rohit.v@ians.in)

Source: IANS

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Handicraft Furniture setting a new trend in the interior and home décor industry

Handicraft Furniture setting a new trend in the interior and home décor industry

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