With focus on the reverse repo rate, the RBI is likely to hold its repo rate in the forthcoming monetary policy on December 8. This comes about as the central bank is set to normalize liquidity. The reverse repo rate is the rate at which the Reserve Bank of India borrows from banks.
Rahul Bajoria, chief economist, Barclays Investment Bank, said there is finally some prospect of banks offering slightly better returns for depositors. “We still believe policymakers remain on track to initiate monetary policy normalization. We do expect the RBI to hike the reverse repo rate by 20 basis points during the policy meeting.”
Pranjul Bhandari, HSBC chief economist, said the RBI has already embarked on a policy normalization path with the introduction of variable reverse repo rate (VRRR) auctions. “We expect it to take further steps, a 20bps hike in the reverse repo rate at the December 8 policy meeting, followed by 20bps more in February.” Bhandar believes repo rate hikes are likely to follow in mid-2022.
But Soumya Kanti Ghosh, State Bank of India chief economic adviser, says the central bank will be able to achieve its goals without any revision in key policy rates. “We believe the talks of a reverse repo rate hike in the monetary policy committee meeting may be premature as the RBI has been largely able to narrow the corridor without the noise of rate hikes and ensuring market cacophony.”
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The RBI had released vast amounts of money into the banking system as a response to the COVID-19 pandemic. And this resulted in a surplus of about Rs 11 lakh crore earlier this year. Sources have highlighted that liquidity remains in surplus mode, with the average daily net absorption under the liquidity adjustment facility at Rs 7.6 lakh crore as of November. They also say that the central bank is achieving its goals through multiple tools such as VRRR and open market operations.
