RBI to announce its bi-monthly monetary policy

The Reserve Bank of India (RBI) will announce its bi-monthly monetary policy on Friday and the central bank is expected to opt for the status quo on interest rates amid inflationary concerns. Financial experts, expect that RBI will adopt a "wait-and-watch" strategy since it has little elbow room to manoeuvre monetary policies as higher commodity prices and rising global rates following the Covid-19 recovery leave serious implications on production costs.

"Higher commodity prices and rising global prices post the robust recovery in a few industrial countries will have implications on production costs," Rumki Majumdar, an economist with Deloitte India, quoted.

RBI governor Shaktikanta Das-led Monetary Policy Committee's (MPC) review meeting started on Wednesday.

"We expect the RBI MPC to look through the transitory hump in inflation and stick with a unanimous dovish pause in the upcoming August 6 policy. The MPC is likely to revise up its FY22 average CPI inflation forecast slightly from the previous 5.1 per cent and flag potential upside risks," according to a BofA Global Research report.

A recent RBI article said that the central bank has been mandated by the government to keep Consumer Price Index (CPI) based inflation at 4 per cent with a margin of 2 per cent on either side.

The sense is that inflation will persist at these elevated levels for some months before easing in the third quarter of 2021-22 when the kharif harvest arrives in markets, according to sources.

After the June MPC meet, RBI left the benchmark interest rate unchanged at 4 per cent. It was for the sixth time in a row that MPC maintained the status quo on the interest rate.