MUMBAI: The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) is widely expected to hike the repo rate by another 25 basis points on Thursday. While the decision of RBI on the repo rate is keenly awaited; economists, bankers and other stakeholders will be keeping a close watch on the views of RBI Governor Shaktikanta Das on the stance of the central bank, going forward.
Experts expect the central bank to change its current stance of withdrawal of accommodation to neutral as the liquidity deficit in the banking system is likely to increase during the April- June quarter. The change in stance is also crucial for the market and the broader economy as the neutral stance will signal that there would not be more rate hikes in the current calendar year.
“The change to a neutral stance will be due to a couple of factors. First, there is already a paucity of liquidity in the system which will continue into April. Therefore, the stance cannot be withdrawal of accommodation,” Madan Sabnavis, Chief Economist, Bank of Baroda told this newspaper.
“Second, by changing the stance to neutral the message conveyed will be that we are at the end of the cycle of increasing rates. Third, the signal will also be to let the market know that liquidity will be provided to ensure stability,” he added.
If the RBI sticks to its stance of withdrawal of accommodation, it would be an indication of further rate hikes. Even at the last meeting, the market was expecting a change of stance