RBI Governor Urjit Patel's comments on the rupee would also be closely monitored.
- RBI has kept rates unchanged since October
- RBI is widely expected to keep rates steady at 6.25% this time
- RBI is expected to announce measures to drain excess liquidity with banks
After springing surprises in all three of its past monetary policy meetings, some analysts have not ruled out another one from the Reserve Bank of India later today. The RBI's Monetary Policy Committee will be announcing its decision at 2:30 pm. The RBI is widely expected to keep its key lending rate or repo rate steady at 6.25 per cent. All 60 economists polled by Reuters predict that the six-member monetary policy committee will leave the repo rate unchanged at the level where it has been since October.
Here are 10 key developments:
1) Investors would be watching out for the Committee's views on consumer inflation after prices advanced 3.65 per cent in February from a year earlier, not far below the RBI's target of 4 per cent.
2) Investors are expecting the RBI to announce measures to drain the Rs 4 lakh crore that has accumulated in the banking system in March, double as compared with January.
3) This has raised concerns about inflation at a time when the RBI is seeking to prevent rising prices by changing its policy stance to "neutral" from "accommodative".
4) The demonetisation of high value notes announced last year has led to a surge in bank deposits at a time of weak credit offtake.
5) RBI Governor Urjit Patel's comments on the rupee would also be closely monitored. The Indian currency has surged over 4.5 per cent in the March quarter against the US dollar at a time when exports are showing signs of recovery. An appreciating domestic currency hurts exporters.
6) "In our view, the main focus of the central bank is likely to be on liquidity absorption in order to signal a neutral policy approach and for gaining additional headroom to intervene in the currency market," said HDFC Bank chief economist Abheek Barua.
7) In October, the Monetary Policy Committee unexpectedly cut rates and then it held them steady in December when the Street was betting on an easing move.
8) In February, the Committee again surprised by holding rates and switching to a "neutral" stance from "accommodative". All decisions were taken by a unanimous 6-0 vote, further adding to the surprise.
9) In the February policy review, the RBI chief had said he would wait for more clarity on the inflation trend and the impact of demonetisation on growth before making changes to the key policy rate.
10) To justify a rate cut this year, economists say the RBI would likely need more comfort on consumer prices, either through a slump in food prices or an easing of core inflation, which has stayed at around five per cent for several months.
(With agency inputs