Tuesday, June 28, 2022

India’s Economic Outlook Might Stumble On Reverse Repo Rate Delay By RBI

New Delhi- When India’s Monetary Policy Committee (MPC) meets in two days’ time on December 6, the one thing that is going to be on its agenda, for sure, is taking into consideration the impact of new COVID variant – Omicron – on the country’s economic outlook. At the same time, the new variant is […]

New Delhi- When India’s Monetary Policy Committee (MPC) meets in two days’ time on December 6, the one thing that is going to be on its agenda, for sure, is taking into consideration the impact of new COVID variant – Omicron – on the country’s economic outlook. At the same time, the new variant is also seems likely to delay Reserve Bank of India’s plan to ease its monetary stance. Experts predict a further delay in a hike in the Reverse Repo rate in RBI’s February policy announcement. The 6-member MPC will meet on December 6 to 8.

The policy normalization of RBI was expected to begin in December 2021 since the growth data showed signs of improvement already in early October, which was also when the last policy review took place.

What is Repo Rate

Repo rate is the rate at which loans are granted to the bank to help liquidity flow into the national economy. On the other hand, Reverse Repo Rate is the “rate at which liquidity is absorbed in the economy.” If banks in the country place their surplus assets with RBI, the top bank offers lucrative interest rates, to push RRR.

Only last week, Goldman Sachs had predicted 8.3% growth in financial Q3 2021 as well as 9.1% GDP for 2022 for India. The agency held a robust consumption trend to be responsible for this positive growth. This made experts hopeful about the country being able to maintain this momentum of growth. In fact, RBI has gone a step further than Goldman Sachs to predict a 9.5% GDP growth rate for 2021-22. Therefore, you cannot blame the public for being too much hopeful about the future economic conditions.

However, monetary policy normalization, if pre-poned, would have improved this growth trend further. But that seems delayed as of now. Also, since the world, and India as well, are still making efforts to understand the new variant of COVID-19, Omicron, the basic expectations from the national economic outlook would, thus, remain unchanged. Omicron may initiate downward risks for the growth outlook. However, despite everything, the impact is going to be over by the financial quarter ending on March 31, 2022.


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