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Inflation Concerns May Help RBI Maintain Status Quo On Key Rates

Inflation Concerns May Help RBI Maintain Status Quo On Key Rates

RBI Monetary Policy: The central bank may keep key rates unchanged over inflation concerns

Rising retail inflation which touched 6 per cent in May 2021 and wholesale inflation which too had touched a high of 12.94 per cent during the same period, coupled with monsoon being close to normal across the country, may encourage the Reserve Bank of India (RBI) to keep the lending rates unchanged as its monetary policy committee (MPC) meets tomorrow on August 4.

RBI Governor Shaktikanta Das, who will announce the committee’s decision on the third and final day of the meeting, i.e. August 6, 2021, may take these factors into consideration as well as the views of the other committee members before taking a call on the repo rate.

Global commodity prices, easing of lockdowns in several states after the second wave of the Coronavirus infection and food prices getting impacted by monsoon, are some of the factors that could impact the MPC’s views on lending rates.

Though nobody can hazard a guess on the committee’s final views, the overall condition of key economic indicators are likely to be considered by the MPC during the meeting.

However at the same time, deficit rainfall during July which led to poor kharif sowing, could lead to higher food inflation. This could be a matter of concern for the committee and it may have to adopt a defensive stance.

However adopting a status quo may also help curb excess liquidity, which in turn could help control inflation.

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