The Reserve Bank of India’s monetary policy committee meets this week amid continued tensions in West Asia and worries over a weak monsoon, which could affect food prices in the months ahead.
The rupee had also been under pressure against the US dollar earlier this year. But the strong uptick in FCNR (B) (foreign currency non-resident) deposit flows, which will help strengthen foreign exchange reserves should give the central bank some comfort.
In this backdrop, the MPC may remain cautiously watchful and may maintain a status quo, while pushing any possibility of a rate hike to the future.
In the June MPC meet, the repo rate was left unchanged at 5.25 per cent, while the central bank announced several measures to boost foreign institutional investor flows in the country.
“Present growth-inflation dynamics point towards risks to growth with a manageable inflation trajectory in the immediate future. This coupled with elevated global uncertainties, may result in MPC not considering the rate hike option in a hurry,” reckoned Mandar Pitale, head, financial markets, SBM Bank (India) Ltd.
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MPC is expected to deliver cautionary guidance with global oil prices and monsoon remaining key monitorables for future policy actions, according to him.
Santanu Sengupta, chief India economist at Goldman Sachs also expects the MP to leave the repo rate unchanged and also retain the neutral stance.
“We expect the MPC to retain a cautious tone on the outlook, particularly around El Niño-related weather risks and the still-elevated uncertainty from Middle East geopolitical tensions,” said Sengupta.
The RBI had earlier this year announced a special window banks to raise foreign currency FCNR (B) deposits, which would allow banks to raise FCNR (B) deposits and swap them at concessional rates.
According to its latest data, $40.81 billion have been cumulatively raised via FCNR (B) deposits, overseas foreign currency borrowings (OFCB) and external commercial borrowings.
