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RBI Rate Hike Pause: Focus Shifts to Liquidity
4 Feb
Summary
- Most economists expect the RBI to hold rates steady at 5.25%.
- Systemic liquidity is a key concern, overshadowing interest rates.
- Future policy might depend on new CPI data due February 12.
The Reserve Bank of India's Monetary Policy Committee (MPC) is widely anticipated to maintain the repo rate at 5.25% during its February meeting. A significant majority of economists predict a pause, signaling an end to the current rate-cut cycle. The central bank is also expected to retain its 'neutral' monetary policy stance.
This meeting's primary focus is likely to be on managing systemic liquidity, which has remained low. Factors contributing to this include a high government cash surplus and ongoing foreign exchange interventions by the RBI. While inflation is near the 4% target and growth shows resilience, concerns about the rupee and the transmission of past rate cuts have narrowed the scope for further easing.
Economists suggest that liquidity measures, such as open market operations (OMOs) and dollar buy-sell swaps, will be crucial. If liquidity pressures persist, a temporary cut in the cash reserve ratio (CRR) is also a possibility. The MPC may also await further clarity from the new consumer price index (CPI) series, scheduled for release on February 12, before making significant policy alterations.
