RBI MPC: Status Quo on Rates Likely, SBI Predicts Multiple Hikes
The Reserve Bank of India is expected to hold the repo rate steady at 6.5% in its April policy review, a State Bank of India report forecasts. The central bank is likely to maintain its ‘withdrawal of accommodation’ stance to keep inflation in check amid global economic uncertainty.
Key Takeaways
- Repo Rate Hold: RBI likely to keep key lending rate unchanged at 6.5%.
- Inflation Focus: ‘Withdrawal of accommodation’ stance to continue, targeting 4% inflation.
- Liquidity Tightening: Multiple policy rates and ratios may see 25 bps hikes to manage system liquidity.
Policy Meeting and Stance
The RBI’s Monetary Policy Committee (MPC) meets from April 3 to 5. “Given the global economic uncertainty, we expect the RBI to maintain a status quo on the repo rate in the upcoming policy review,” the SBI report stated.
The report emphasised the RBI’s likely continuation of its stance to ensure inflation remains within the target range of 4%, with a 2% margin on either side.
Expected Rate and Ratio Hikes
The SBI report outlines potential 25 basis point increases across several monetary tools to absorb excess liquidity:
- Cash Reserve Ratio (CRR): May rise to 4.75% (the portion of deposits banks keep with RBI).
- Statutory Liquidity Ratio (SLR): May increase to 19.5% (deposits invested in government securities).
- Marginal Standing Facility (MSF) Rate: May reach 6.75% (overnight borrowing rate against G-Secs).
- Bank Rate: May be hiked to 6.75% (uncollateralised lending to banks).
- Reverse Repo Rate: May go up to 3.35% (rate at which RBI borrows from banks).
- Standing Deposit Facility (SDF) Rate: May rise to 6.25% (tool to absorb excess liquidity).
- Liquidity Adjustment Facility (LAF) Rate: May increase to 6.5% (primary liquidity management tool).
These coordinated moves, as per the SBI analysis, aim to tighten liquidity conditions while holding the main policy rate steady, a balancing act in uncertain global times.
