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RBI likely to maintain status quo in its monetary policy on December 4

Last Updated 04 December 2020, 01:13 IST

The Monetary Policy Committee (MPC) of RBI is expected to maintain status quo when it announces its policy decision on December 4.

The MPC began its deliberations on Wednesday. Amid high inflation and the central bank exhausting almost all its tools, experts have said it should wait and watch till the government makes its stand clear on the fiscal policy.

“RBI should do not do anything for now. They have done enough. They are the only ones who have held things up. Otherwise it would have been worse. They should wait and see what the government is doing vis-à-vis their fiscal policy, Pronab Sen, former chief statistician of India, told DH.

After its last MPC meeting in October, RBI kept policy rates unchanged to help tame inflation that in the recent times has surged past 6%. But the central bank has cut policy rates by 115 basis points so far this year.

“With inflation continuing to trend well above RBI’s medium-term target of 4%, there is limited room for a rate cut in the upcoming policy. We have seen encouraging signs of a pick-up in economic activity and a return of consumer demand, buoyed by the festive season. The next few months are critical as it needs to be seen whether demand levels will sustain and the central bank will closely monitor the growth trajectory and high-frequency data prints.

“Till there is sustained demand recovery, the Monetary Policy Committee is expected to maintain its accommodative stance. On the Covid front, there can be no lowering of our guard as the risks of the virus continue at a large scale. The positive aspect is that vaccines seem likely in the next calendar year – anytime in the first half. All in all, expect the MPC to maintain a status quo on rates with an accommodative bias,” said Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank.

Madan Sabnavis, Chief Economist, Care Ratings said the six-member MPC is expected to factor in its decision making the nascent signs of improvement in the domestic economy while also recognising the fragile nature of this recovery and the underlying downside risks.

“We expect the RBI to retain the policy rate at 4% and continue with the accommodative policy stance despite the buildup in inflationary pressures,” Sabnavis said.

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(Published 02 December 2020, 15:01 IST)

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