The Reserve Bank of India (RBI) is expected to keep the policy repo rate unchanged at 5.25 per cent during its three-day Monetary Policy Committee (MPC) review that begins today, says a report.
The central bank is likely to maintain a neutral stance since the transmission of past rate cuts to bank lending rates is still underway, while bond yields have remained relatively sticky, says the report by Nuvama Research.
“In the forthcoming MPC review, we reckon the RBI shall maintain status quo after cumulative easing of 125 bps, bringing the repo rate to 5.25 per cent. Transmission to bank lending rates is in progress and bond yields have been quite sticky,” the report noted.
The RBI’s MPC is scheduled to meet over three days on February 4, 5 and 6, with the policy outcome to be announced on Friday, February 6.
Also Read: Banks oppose RBI stand on RTI disclosures, move CIC
According to the report, the central bank is likely to focus more on liquidity management rather than further rate action at this stage.
While the global trade environment remains uncertain, the recent trade deal finalisation between India and the United States could help support foreign capital flows and the Indian rupee, which may provide the RBI with some leeway to manage domestic liquidity conditions more effectively, it adds.
With the Indian economy appearing to be bottoming out, growth conditions across sectors remains uneven amidst elevated levels of market volatility. Given these factors, the best approach would be one to wait and watch, the report said.
“Accordingly, the RBI is likely to remain in a wait-and-watch mode,” it said, adding that policy decisions will continue to be guided by evolving domestic and global conditions.
Overall, the report suggested that while the rate-easing cycle has already provided significant support, the RBI may now prefer to assess the impact of past actions and manage liquidity, rather than move towards immediate changes in policy rates.
Follow us
