RBI Monetary Policy: RBI Has A Challenging Job In Hand

The RBI Monetary Policy outcome of which will be known on Feb 10, is going to be a challenging one this time. It is going to come against the backdrop of rising interest rates and elevated inflation around the globe.

"We believe that RBI and has a challenging task at hand. Growth recovery is still uneven and due to various reasons like high oil prices, supply chain disruption, cost pressures are building up thereby leading to sticky core inflation. With its major thrust on capital spending in the recent Budget 2022-23, the fiscal policy continues to be overall supportive of long-term growth," says Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance.

According to him, given that on one hand uncertainty around the Covid variants continue and growth is still uneven, inflationary expectations remain high and globally central banks are withdrawing easy monetary policy, against this backdrop, we expect the RBI to continue its path of policy normalization but, rather slowly.

"As food inflation is likely to be benign, we expect the RBI to hike reverse repo rate first and then may be towards the second half of 2022 there could be a hike in repo rate as well. We expect the RBI to continue with its sops for the MSME / SME sector and support the weaker section of the society. Since MSMEs and self-employed have been the most impacted during the pandemic and most NBFCs lend to this segment, we are hopeful of some additional credit and policy support. CV sales in Q3 have been flat, however with the infra push from the budget 2022 we expect healthy revival in credit in 2022," Revankar says.

Dhaval Ajmera, Director, Ajmera Realty and Infra India says that while the broader expectation is that the central bank will stay put with its key rates and policy stance. What will be
interesting to watch is the guidance it provides on the interest rate trajectory for the rest of the year.

"After a heavy-duty CAPEX budget by the government, it will be interesting to watch how the central bank will do the heavy lifting on the borrowing front, also maintain an easy liquidity scenario to aid the economic growth simultaneously.

As the economy is recovering and interest rates rising, the central bank has to start hiking rates, what will be important is to maintain a balance as global central banks will start reversing their easy monetary policy and it may lead to capital flight. The real estate and construction sector expects the central bank to adopt a staggered and easy spread out rate tightening cycle in the next few quarters," he says.