5 things to keep in mind in the August bimonthly monetary policy.

The RBI’s Monetary Policy Committee (MPC) is set to announce its decision on key interest rates on Friday (August 5), at a time when central banks globally are raising policy rates and inflation is picking up. happening Survey of analysts News18.com It suggests a 25-50 basis points (bps) hike in the repo rate, with most experts talking about a 35-bp hike. Key points to note in today’s monetary policy announcement are:

Interest rate decisions

The Reserve Bank of India’s MPC will hike the key repo rate on Friday to control inflation. Economists range from a 25 basis point increase to a 50 basis point increase in the policy rate. Repo rate is the rate at which RBI provides short-term loans to banks.

Apart from repo, the MPC’s decision on Bank Rate (the rate at which RBI lends money to banks for long-term tenure), Reverse Repo Rate (the rate at which RBI borrows money from banks), Standing Deposit Facility (SDF) And Marginal Standing Facility (MSF) will be monitored.

In the last bi-monthly monetary policy in June, the RBI’s rate setting panel had fixed the reverse repo rate at 3.35 percent, the bank rate at 5.15 percent, the SDF at 4.65 percent and the MSF at 5.15 percent.

Monetary policy stance for future policies

The MPC’s policy stance will be key to watch, as it will dictate RBI’s future policy moves. In an off-cycle policy review in May 2022, the MPC decided to “remain accommodative with a focus on housing returns”. While in the June 2022 policy review, it decided to “remain focused on housing returns”. RBI’s accommodative stance implies easy monetary policy.

“We expect a 50-bp hike in August and continue to emphasize the need for further tightening in the rest of the year,” said SBM Bank India head (treasury) Mandir Patle.

Inflation forecasting

As inflation in India remains ahead of the RBI’s target of 2-6 percent, the Central Bank of India’s inflation commentary will be a key focus. Retail inflation eased slightly to 7.01 percent in June, from 7.04 percent recorded in May. In April, it was 7.79 percent.

In the previous policy statement in June, the RBI had kept the inflation forecast for the current fiscal year 2022-23 at 6.4 percent, compared to the earlier forecast of 5.7 percent. Rating agency CRISIL in its latest report expects retail inflation to remain at 6.8 percent in FY23.

GDP forecast

In the June monetary policy review, the RBI maintained its GDP growth forecast for the current fiscal year 2022-23 at 7.2 percent. “For 2022-23 real GDP growth is forecast at 7.2 per cent, with Q1 at 16.2 per cent; Q2 at 6.2 per cent; Q3 at 4.1 per cent; and Q4 at 4.0 per cent, with broadly balanced risks.” together,” RBI Governor Shaktikanta Das said while announcing the policy.

SBM Bank India’s Patale said, “Currently, macroeconomic conditions are relatively good. Commodity prices are trending lower. Oil prices are on the uptrend (Brent around $100). Indian FPIs in July have become net buyers of the stock.

In the latest May data, the Index of Industrial Production (IIP) showed double-digit growth at 19.6 percent and is the highest level for the 11th month despite a higher base in May 2021. However, last week in July, the International Monetary Fund (IMF) cut India’s FY23 growth to 7.4% from the 8.2% forecast in April.

Other announcements

Other important RBI announcements related to loans, UPI transactions, cryptocurrencies, liquidity, and cooperative banks will also be monitored.

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