Interest rates

Interest rates could be kept, experts say

The next Reserve Bank of India monetary policy committee will meet from December 6-8, 2021 to decide on further action. The review of monetary policy along with the release of major macroeconomic data points will guide major stock indexes this week.

RBI’s MPC is generally expected to maintain a status quo in policy rates, according to news reports. Currently, the central bank’s MPC has kept the repo rate, or short-term loan rate, for commercial banks at 4%.

Churchil Bhatt, EVP Debt Investments, Kotak Mahindra Life Insurance Company Limited said, “Once again the virus has mutated, and with it, the likely permutations of the RBI policy of December 21. While we can deduce from experience that each subsequent COVIDI variant has had an increasingly less severe impact on economic activity, there is no guarantee with COVID. In addition, with inflation becoming a political issue, the world’s central banks are withdrawing their belief in the “transient” nature of inflation. “

In contrast, India’s short-term CPI is expected to remain within the MPC target range of 4-6%. This, in turn, should give the MPC time to assess the medium-term implications of Omicron by continuing to maintain an accommodative break in policy rates in December, he said.

“We expect, however, that the RBI will continue to normalize the high liquidity of the banking system by further adjusting the quantum and content of existing VRRR trades. Interest rate markets have realigned themselves to this new reality and are expected to remain constrained. at current levels in the absence of a political surprise, ”Bhatt said.

Rajani Sinha, Chief Economist and National Research Director, Knight Frank India, said: “RBI has started the normalization process by removing excess liquidity from the system through enhanced VRRR auctions and suspending G-SAP. At the December MPC meeting, the RBI would increase the reverse repo rate to narrow the corridor between the reverse repo rate and the reverse repo rate.

“However, the new Omicron COVID variant has once again pushed the global and Indian economy into a state of uncertainty and nervousness. In such a scenario, the RBI at its next meeting is expected to keep rates unchanged. On the growth front, as most economic indicators are above pre-COVID levels, there is still a lot of slack in the economy. Therefore, the RBI may decide to wait and watch until the next MPC meeting in February 2022. “

RBI will be concerned about rising inflationary pressures in the economy. Currently, the upward pressure on inflation is due to high commodity prices and supply bottlenecks. However, with the acceleration of economic growth, there is a threat of additional demand-side pressure on inflation. Sinha said, “We can expect the RBI to start raising rates starting in 2022. The RBI will also narrow the corridor between the repo rate and the reverse repo rate, with a higher increase. marked by the reverse repurchase agreement rate. The amount of the rate hike will depend on how the COVID scenario unfolds. and its subsequent impact on economic growth in 2022, ”she added.

Investors would react on Monday, December 6 to the release of non-farm payroll data in the United States over the weekend, while keeping an eye on the RBI’s policy decision expected next week in which the status quo should be maintained, ”said Siddhartha Khemka, Director, Retail Research, Broking & Distribution, said Motilal Oswal Financial Services IANS.

“We recommend investors to continue to buy bearish strategies as uncertainty is likely to persist for now, while long-term fundamentals remain intact,” Khemka added.

In addition, the consumer price index (CPI) inflation indicator for November will be released next Friday. The October Industrial Production Index (IPI) will also be released.

“The main national data points awaiting release in the coming week are inflation data for November, which is expected to remain high, and industrial and manufacturing production data for October,” Vinod Nair said, head of research at Geojit Financial Services.

On a technical level, Deepak Jasani, head of retail research, HDFC Securities, said the weekly charts showed a ‘doji’ type formation, suggesting that the recent decline may be nearing its end for the moment.

“We may see a consolidation or an upward rebound for the next few sessions. If rising 17,536-17,613 could serve as resistance while 16,722-16,782 could serve as support on a weekly basis,” Jasani said.

In addition, the behavior of FIIs will play a critical role in shaping the market, said Santosh Meena, head of research at Swastika Investmart.

Last week, the FII sold shares worth Rs 15,800 crore on the spot market.

“However, the DII provided good support to the market by buying nice buys worth Rs 16,500 crore on the spot market,” Meena said.

(With additional entries from IANS)

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Posted on: Sunday December 05, 2021 11:18 IST