MPC may opt for cut in liquidity, no rate hike

Experts see either discontinuation or reduced quantum of G-SAP

- ANUP ROY

Economists and bond market participants do not expect the monetary policy committee (MPC) to change its accommodative stance or the repo rate on October 8 but they will keenly look for hints on policy normalisation, starting with the removal of excess liquidity.

A Business Standard policy poll of 14 leading economists and bond market participants expects the status quo. But their prognosis about other policy outcomes varied widely.

The repo rate is now at 4 per cent, while the reverse repo rate is at 3.35 per cent. The rates have remained at a record low because of the pandemic and the RBI seems not to be in a mood to hike rates.

Notwithstanding the rate hikes by other central banks and guidance by the US Federal Reserve to reduce its bond purchases from November, the Reserve Bank of India (RBI) is unlikely to be in a hurry to act on rates.

The August print of the consumer price index (CPI) inflation came at 5.3 per cent, well within the RBI operation limits, and prices are expected to fall further in the coming months. A data-dependent RBI has officially taken a stance to continue with the accommodative policy for “as long as necessary until signs of durable growth are visible.

Those considerations haven't changed, and except for global central banks sounding hawkish, pushing up bond yields, nothing much has changed on the ground, say economists.