A sudden surge in COVID-19 cases and the government's recent mandate asking the central bank to keep retail inflation around 4 per cent are likely to prompt the Reserve Bank to maintain status quo on policy rates at its first bi-monthly monetary policy review for the current fiscal, according to experts.
The Monetary Policy Committee (MPC), RBI's rate-setting panel, is also likely to maintain the policy stance accommodative at the next policy review to be unveiled on April 7, say experts.
RBI Governor Shaktikanta Das headed six-member MPC is scheduled to meet from April 5 to 7. The policy meet outcome will be announced on April 7.
The RBI, experts feel, will wait for an opportune time to announce monetary action with a view to ensure the best possible outcome in terms of pushing growth without sacrificing the main objective of containing retail inflation at 4 per cent with a margin of 2 per cent on either side.
The policy repo rate or the short-term lending rate is currently at 4 per cent, and the reverse repo rate is 3.35 per cent
On the forthcoming monetary policy, Edelweiss Research said economic recovery is still uneven and the pace of improvement has slowed of late after sharp rebound from lows. Further, the recent rebound in Covid cases poses a fresh challenge.
It said the growth and inflation dynamic warrants continued policy support, especially with rising covid cases domestically.
"In all, we expect Mint Street to leave rates unchanged and maintain an accommodative stance. The key monitorable will be any guidance on open market purchases (OMOs) or on long-term rates more generally," it said.
Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and Proptiger.com said the RBI is walking a tight rope between COVID-19 cases once again rising across the country, which could potentially put brakes on the recovering economy, and the inflation rate that is trending upwards.
"The apex bank is likely to keep the repo rate unchanged in the upcoming bi-monthly review of key rates," he said.
He said home loan rates are at historic lows with recent cuts by a number of commercial banks and a further cut in rates will help the industry and the overall economy.
Suman Chowdhury, Chief Analytical Officer, Acuit Ratings & Research, said the MPC in its upcoming meeting will continue to reaffirm the accommodative monetary policy despite the global increase in bond yields amidst concerns of a quicker than expected normalisation in the markets of developed economies.
Last month, the government had asked the Reserve Bank to maintain retail inflation at 4 per cent with a margin of 2 per cent on either side for another five-year period ending March 2026.
In a bid to control price rise, the government in 2016 had given a mandate to the RBI to keep the retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 31, 2021.
The central bank mainly factors in the retail inflation based on Consumer Price Index while arriving at its monetary policy. On February 5, after the last MPC meet, the central bank had kept the key interest rate (repo) unchanged citing inflationary concerns.