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The bi-monthly meeting of the monetary policy committee began on February 8 and will end on February 10, when the Governor of the Bank of India Shaktikanta Das will announce his decision.
What is expected this time?
What is the reverse repo rate?
The level of the repo is reversed, currently 3.35 percent, is the rate at which the RBI borrows money from the bank in the short term. RBI does this to suck the excess liquidity in the system The repo level is the level at which the RBI lends short-term funds to the bank. The repo level is 4 percent and is the level of operation policy. RBI uses a repo and reverses the repo to adjust systemic liquidity.
What happens if the reverse repo rate is increased?
The increase in the reverse repo level cannot have a big impact because the step has been valued by the market. Increasing the reverse repo level will indicate the market that the central bank is set to pursue policy normalization pathways “Increased reverse repo level will mean this is the first step in indicating normalization. We may expect such an increase to 25 BPS corridors achieved,” said Madian Sabnavis, chief economist at the Bank of Baroda. “The market will take it that the increase in interest rates has begun and the results might be expected to rise. This will be a precursor for the upcoming repo interest rate hike.”
What does a reverse repo hike mean for the markets?
According to analysts, this step will be largely symbolic because the RBI has sucked the excess liquidity through the ratio of repo variables (VRRR), pushing the effective level closer to the repo level. The reverse increase in the repo level has been valued by the financial market.
What are ‘accommodative’ and ‘neutral’ stances?
The accommodation attitude shows that the central bank is willing to reduce policy levels during the period under guidance to instill liquidity into the banking system. Usually, the increase in interest rates is ruled out while MPC has an accommodative attitude Neutral attitude shows that MPC is ready to cut or raise the level. MPC has had an accommodating attitude over the past two years to help the banking system install on a Pandemic Covid-19.
What happens if the MPC changes its stance to neutral?
Changes in neutral attitudes will show that the level can move in all directions This is an important statement and will definitely be announced now or in April,” said DK Joshi, chief economist in Crisil.
How big is the concern over inflation?
So far, MPC has ignored short-term inflation risks in an effort to support growth. MPC has stated that its attitude will be pro-growth as long as it is needed until there are signs of sustainable recovery in growth The latest data shows that growth is taken. On the other hand, there is also an inflation problem. Retail inflation jumped to 5.59 percent in December, thanks to an unfavorable basic effect RBI needs to overcome the increasing inflation,” said YS Chakravarti, MD from the city of Shriram.
Is there any chance of a repo rate hike?
MPC has repeated that he wants growth to rise again on an ongoing basis and the panel may not be in a hurry to increase the repo level, where the RBI lends to the bank, just now. MPC can look for more cues about the growth of the resurrection. But maybe seeing the market by changing policy attitudes to neutral.
Why is the tone of the policy language important?
Changes in attitude will be seen as the first step towards the possibility of increasing interest rates in the near future. Policy makers are likely to indicate the time of the action in the policy document. Therefore, the language of the policy language is important. Some economists expect an increase at the repo level on the opposite time or in April.
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