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Eye on high retail inflation, RBI may maintain status quo

Bankers and rating agencies said the Monetary Policy Committee is expected to factor in its decision-making the nascent signs of improvement in the domestic economy.

By: ENS Economic Bureau | Mumbai | Updated: December 2, 2020 7:24:01 am
Eye on high retail inflation, RBI may maintain status quoThe RBI said it cancelled the licence of the bank as it "does not have adequate capital and earning prospects".

With retail inflation remaining persistently above its comfort level, the Reserve Bank of India is likely to keep the benchmark interest rates unchanged when the Monetary Policy Committee (MPC) unveils its next monetary policy review on December 4.

Bankers and rating agencies said the 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, including retail inflation which was at 7.6 per cent in October and the persisting high number of Covid cases.

Shanti Ekambaram, group president–consumer banking, Kotak Mahindra Bank, said, “With inflation continuing to trend well above RBI’s medium-term target of 4 per cent, there is limited room for a rate cut in the upcoming policy. All in all, expect the MPC to maintain a status quo on rates with an accommodative bias.”

“We expect the RBI to retain the policy rate at 4 per cent and continue with the accommodative policy stance despite the buildup in inflationary pressures,” Care Ratings said. Retail inflation has been inching upwards in recent months and rose to a 9-month high of 7.6 per cent in October.

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