State Bank of India (SBI) has released a report hinting that the Reserve Bank of India (RBI) is unlikely to shake things up in the upcoming August monetary review 2021. SBI’s research report in– Ecowrap – also revealed that inflation is expected to remain high in the coming months due to global and domestic factors.
The Consumer Price Index (CPI)- based inflation recorded a six month high of 6.3 percent in May, breaching the RBI’s target range of 2-6 per cent. Such developments will surely influence RBI’s decision to maintain a status quo this coming August. The report said, “We expect a status-quo in August. We believe RBI would still try to find a marriage of convenience of regulatory and developmental measures and monetary policy in August policy.”
The much-awaited monetary policy 2021 that came out in June saw the central bank leave the repo rate untouched at 4 per cent. The next Monetary Policy Committee (MPC) meeting is scheduled from August 4 to 6 and it is widely expected that the RBI will adopt an accommodative stance and leave things untouched.
Rising price of food and commodities due to several lockdowns was mentioned by the report too. Even though the second wave of the COVID pandemic has not necessitated a nation-wide lockdown, several states have chosen to implement localized lockdowns. The rising prices has also contributed to core inflation reaching an alarming 6.55 per cent. The last time such numbers were seen was in 2014.
The research report also commented on how the RBI has a seemingly impossible task as India sets out to recover its pre-pandemic growth momentum. If the RBI chooses to increase interest rates or change its stance to combat the surging inflation rates, it risks upsetting the country’s economic recovery. On the other hand, maintaining a status-quo may seriously dent the bank’s credibility in tackling inflation.
This month seems to be the bane of banking institutions as the economy struggles to get back on its feet. Earlier this month, NITI Ayog recommended two public sector banks for privatization as part of the Centre’s strategic disinvestment policy.
Despite grim tidings, Ecowrap noted that “the die has been cast, but the RBI can still hold out with a firm message of ratcheting up inflationary pressures in the August policy statement.”
