<p>The Reserve Bank of India is expected to hold interest rates in its monetary policy announcement on Friday after the Union Budget emphasised the bigger-than-expected spending plan to revive the economy hit by the pandemic.</p>.<p>However, an elevated borrowing calendar of the government, which has pushed yields on the benchmark bonds by over 20 basis points since the budget day, may force it to announce more bond purchases through open market to check rising yields.</p>.<p>Currently, the repo rate or rate at which the RBI lends to banks is at 4%.</p>.<p>The RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to a historic low. The central bank has cut policy rates by 115 basis points since February last.</p>.<p>While retail price inflation is within the comfort zone of the centre, economic growth needs to be supported through the monetary policy, said experts.</p>.<p>“The RBI will draw comfort with the recent moderation in headline inflation which would keep them on accommodative mode for now, complementing the pro-growth intention of the government. However, much more relaxed path of fiscal consolidation would pose upside risks to core inflation thereby prompting some caution,” Upasna Bhardwaj, senior economist at Kotak Mahindra Bank said.</p>.<p>“In the upcoming policy, we expect the MPC to maintain status quo on rates and monetary policy stance with some clarity or guidance on the pace of normalisation of the operative target rate towards pre-pandemic levels. While we expect the Repo rate to be maintained at 4% through rest of 2021, the reverse repo rate hike of 15-35 bps is likely in the current fiscal year. We expect the RBI will continue to strive towards bringing the operative rate towards Repo rate through next few quarters largely with tools like variable overnight and term reverse repos,”</p>.<p>Consumer price inflation eased to 4.59% in December as compared to 7.35% in December 2019.</p>
<p>The Reserve Bank of India is expected to hold interest rates in its monetary policy announcement on Friday after the Union Budget emphasised the bigger-than-expected spending plan to revive the economy hit by the pandemic.</p>.<p>However, an elevated borrowing calendar of the government, which has pushed yields on the benchmark bonds by over 20 basis points since the budget day, may force it to announce more bond purchases through open market to check rising yields.</p>.<p>Currently, the repo rate or rate at which the RBI lends to banks is at 4%.</p>.<p>The RBI had last revised its policy rate on May 22, in an off-policy cycle to perk up demand by cutting interest rate to a historic low. The central bank has cut policy rates by 115 basis points since February last.</p>.<p>While retail price inflation is within the comfort zone of the centre, economic growth needs to be supported through the monetary policy, said experts.</p>.<p>“The RBI will draw comfort with the recent moderation in headline inflation which would keep them on accommodative mode for now, complementing the pro-growth intention of the government. However, much more relaxed path of fiscal consolidation would pose upside risks to core inflation thereby prompting some caution,” Upasna Bhardwaj, senior economist at Kotak Mahindra Bank said.</p>.<p>“In the upcoming policy, we expect the MPC to maintain status quo on rates and monetary policy stance with some clarity or guidance on the pace of normalisation of the operative target rate towards pre-pandemic levels. While we expect the Repo rate to be maintained at 4% through rest of 2021, the reverse repo rate hike of 15-35 bps is likely in the current fiscal year. We expect the RBI will continue to strive towards bringing the operative rate towards Repo rate through next few quarters largely with tools like variable overnight and term reverse repos,”</p>.<p>Consumer price inflation eased to 4.59% in December as compared to 7.35% in December 2019.</p>
